Sears, Roebuck and Co.

views updated May 23 2018

Sears, Roebuck and Co.

Sears Tower
Chicago, Illinois 60684
U.S.A.
(312) 875-2500

Public Company
Incorporated: 1906
Employees: 460,000
Sales: $55.97 billion
Stock Exchanges: New York Midwest Pacific London Basel Geneva Lausanne Zürich Amsterdam Tokyo Paris Frankfurt

Sears, Roebuck and Co. is one of the few U.S. corporations whose name is virtually synonymous with an entire business: retail. Sears sells insurance, residential real estate, and financial services through its Allstate, Coldwell Banker, and Dean Witter subsidiaries, respectively, but retailing has always been the source of its fame. For decades, Sears has prided itself on being the U.S. middle classs primary general goods merchant, the place where average people could get everything from clothes to auto supplies, sporting goods to refrigerators, at an affordable price.

Sears bears the name of Richard W. Sears, who was working as the North Redwood, Minnesota, freight agent for the Minneapolis and St. Louis Railroad in 1886 when a local jeweler gave him an unwanted shipment of pocket watches rather than return them to the manufacturer. Sears sold them to agents down the line, who resold them at the retail level. He ordered and sold more watches, and within six months, he had made $5,000. He quit the railroad and founded the R.W. Sears Watch Company in Minneapolis.

Searss business expanded so quickly that he moved to Chicago in 1887 to locate himself in a more convenient communications and shipping center. Soon customers began to bring in watches for repairs. Since he knew nothing about fixing them, Sears hired Alvah Roebuck, a watch repairman from Indiana, in 1887. A shrewd and aggressive salesmana colleague once said of him, He could probably sell a breath of airSears undersold his competition by buying up discontinued lines from manufacturers and passing on his discounts to customers. At various times from 1888 to 1891, thinking himself bored with the business, he sold out to Roebuck, but came back each time.

In 1888 Sears published the first of its famous mail-order catalogs. It was 80 pages long and advertised watches and jewelery. Thanks to Richard Searss restless search for new merchandise, within two years the catalog had grown to 322 pages, selling clothes, jewelry, and durable goods like sewing machines, bicycles, and even keyboard instruments. In 1894 the catalog cover proclaimed that Sears was the Cheapest Supply House on Earth.

The company changed its name to its current form in 1893, but Alvah Roebuck, uncomfortable with Searss financial gambles, sold out his share two years later and remained with the firm as a repairman. Sears promptly found two partners to replace him: local entrepreneur Aaron Nusbaum and Nus-baums brother-in-law, haberdasher Julius Rosenwald. The company recapitalized at $150,000, with each man taking a one-third share. It continued to prosper, so much so that when the cantankerous Nusbaum was forced to sell out in 1901 after clashing with Sears, his interest was worth $1.25 million.

There was little harmony between the two remaining partners, however. Sears believed in continuous expansion and risk-taking, while Rosenwald advocated consolidation and caution. He also objected to Searss fondness for the hard sell in his catalog and advertising copy. Had the Federal Trade Commission existed then, some of Searss advertising practices would probably not have passed muster, and Rosenwald preferred a reputation of trustworthiness; it should be said in Searss defense, though, that he invented the unconditional money-back guarantee and stood by it.

In 1905 construction began on a new headquarters plant on Chicagos west side that would consolidate all of the companys functions. To help raise the necessary capital, Sears went public in 1906. Wall Street was leery of the incautious Richard Sears, however, and he resigned as president in 1908 when it became clear that he was obstructing the companys way in the capital markets. He was appointed chairman, but his heart was never in that job. He retired in 1913 without ever having presided over a board meeting and died the following year at the age of 50. Near the end of his life, he summarized his career as a merchant thus: Honesty is the best policy. I know, Ive tried it both ways.

Sears was now Julius Rosenwald s company to run, and he did it with such skill and success as to make himself one of the richest men in the world. Sales rose sixfold between 1908 and 1920, and in 1911 Sears began offering credit to its customers at a time when banks would not even consider lending to consumers. During this time the company grew to the point where its network of suppliers, combined with its own financing and distribution operations, constituted a full-fledged economic system in itself. Rosenwald s personal fortune allowed him to become a noted philanthropist; he gave away $63 million over the course of his life, much of it to Jewish causes and to improve the education of southern blacks. As a result of the latter, he became a trustee of the Tuskegee Institute and a good friend of its founder, Booker T. Washington.

The depression of the early 1920s dealt Sears a sharp blow. In 1921 the company posted a loss of $16.4 million and omitted its quarterly dividend for the first time. Rosenwald responded by slashing executive salaries and even eliminated his own. He also was persuaded to donate 50,000 shares from his personal holdings to the company treasury to reduce outstanding capital stock and restore Searss standing with its creditors. Sears thus weathered the crisis and benefited from the general prosperity that followed.

Rosenwald retired as president in 1924, retaining the chairmanship he had inherited from Richard Sears. He was succeeded by Charles Kittle, a former Illinois Central Railroad executive. In 1925 Sears began to take on its current shape when it opened its first retail outlet in Chicago. Seven more new stores followed that year, and by the end of the decade 324 outlets were in operation. Retailing would become so successful for Sears so quickly that by 1931, the stores would top the catalog in sales.

Searss entry into retailing was the brainchild of vice president Robert Wood, who was an executive at archrival Montgomery Ward before Rosenwald hired him in 1924. Wood would always be known as the General for having been the U.S. Armys Quartermaster General during World War I. He had also been chief quartermaster for the construction of the Panama Canal. He much preferred business to the military, however, and his long career in merchandising would earn him a reputation for genius. For its first 40 years, Sears had targeted the U.S. farmer as its main customer, luring him with a combination of down-home earthiness and the tantalizing prospect of material luxury. Two postal service innovationsthe rural free delivery system in 1891 and the parcel post rate in 1913helped target this consumer by making it affordable to reach remote locations by mail; Sears quickly became parcel posts largest single customer. Then Wood saw that the automobile would soon make urban centers more accessible to outlying areas, broadening the customer base for retail outlets. Thwarted by conservative top management at Wards, he wasted no time in implementing his vision at Sears. At first, the stores simply absorbed surpluses from the catalog, but they soon began to offer a full range of goods. Sears also became the first chain to put free parking lots next to their stores. More than anyone else, it was Robert Wood who turned Sears into a leviathan.

Charles Kittle died suddenly in 1928, and Wood succeeded him. In 1929 Sears arranged a merger between two of its suppliers, Upton Machine and Nineteen Hundred Washer Company, to form Nineteen Hundred Corporation, which would change its name to Whirlpool in 1950. Somewhat against its intentions, Sears was becoming increasingly involved in the affairs of its suppliers, many of which were small companies whose outputs were almost entirely geared to its needs. Another leadership change occurred in 1932, when Julius Rosenwald died at the age of 69 and was succeeded as chairman by his son Lessing.

The onset of the Great Depression hurt sales badly from 1930 to 1934, but thanks to cost-cutting measures, Sears posted a loss only in 1932. The company, in fact, diversified in 1931 when it created its Allstate subsidiary to sell auto insurance. Wood saw it as another way to capitalize on the growing popularity of the automobile. He installed as general manager insurance agent Carl Odell, an acquaintance who had suggested the idea as they commuted to work one day.

Lessing Rosenwald retired in 1939. Preoccupied with running his fathers estate, he never attended a board meeting. Wood succeeded him, and the power of chief executive passed from the presidency to the chairmanship. At about this time, however, Wood also became controversial because of his prominent support for America First, an isolationist organization that was the vehicle through which Charles Lindbergh made his notorious anti-Semitic speeches. Wood dropped his backing once the United States entered World War II and publicly supported the war effort, but remained a strong critic in private ever after.

As war loomed, Sears benefited from increases in military spending and a consumer buying panic. In 1941 sales reached an all-time high of $975 million, a 30% increase over the previous year. Sales then leveled off, however, and raw material shortages made durable goods hard to come by. Even as late as 1946, it had to refund $250 million in orders that could not be filled. Military procurement helped make up for the shortfall. During the war, Sears supplied the armed forces with just about everything that did not need gunpowder to make it work, and even a few things that did; some factories belonging to Sears suppliers were converted into munitions plants by the War Department. Sears also began its first foreign ventures during and immediately after the war. In 1942 it opened a store in Havana, nationalized by the Castro government in 1960, and in 1947 it opened stores in Mexico.

Once the war ended, Sears flourished. Sales edged up to $1 billion in 1945, and doubled the next year. Anticipating an economic boom, Wood launched the company on an aggressive expansion program. Concentrating on the Sun Belt states, in which the most population growth would occur, he located many of the new stores in the path of suburban expansion before the areas built up. One store in California was built on a dairy farm and had cows roaming around the parking lot when it opened. Thanks to the Generals prescience, Sears left its rivals in its wake. In 1946 it held a small sales advantage over Montgomery Ward, but in 1954 it posted sales of $3 billion while Ward, which had been slower to anticipate postwar trends, could muster only $1 billion. Sears also became a symbol of U.S. prosperity. In the late 1940s, the Associated Presss Moscow bureau chief reported that the most effective piece of foreign propaganda in the Soviet Union was the Sears catalog.

At the same time, Sears was becoming a widely hailed living experiment in corporate management. Wood had long had it in mind to decentralize the company, and its postwar success gave him the luxury to remold it in his image of corporate democracy. The merchandising operations were carved up into five regional territories, with each given a high degree of autonomy. Although buying operations remained centralized in theory, in fact buyers were allowed substantial independence. To its employees, many of them returned veteransthe company hired 50,000 people between 1946 and 1949 alone-Sears became, as author Donald Katz put it in The Big Store, a place where country boys and infantrymen could speak their minds and still roam free.

During the early 1950s, Sears began to stock more clothing as durable goods sales slackened. The new postwar suburbanites who had bought their first homes had already filled them with all the Sears appliances they needed. At about this time, the company also strengthened its ties with its suppliers even further. Between 1951 and 1960, it acquired virtually complete control of Warwick Electronics, which made Sears televisions, radios, phonographs, and tape players. In 1961 it effected a merger between 15 of its soft goods suppliers and created Kellwood Company.

Robert Wood retired in 1954 at the age of 75, but retained power over appointment of his successors until shortly before his death in 1969. A series of caretaker chairmen followed him, all of whom were favorites of his. None of them served more than six years. The first was Theodore Houser, who retired in 1958 and was succeeded by Fowler McConnell. McConnell was followed in 1960 by Charles Kellstadt, who served for two years and after whom the Kellwood Company was named. Austin Cushman succeeded Kellstadt and served until 1967.

In 1963 the company posted sales of $5.1 billion, and an executive with the discount chain Korvette quipped that Sears was not only the number-one retailer in the United States, but also numbers two, three, four, and five. Surveys showed that one in five U.S. consumers shopped at Sears regularly; its sales volume was greater than that of some entire industries. The company had become big enough to justify its own shopping center development subsidiary, Homart Development, which it had formed in 1960.

In 1967 Sears posted $1 billion in monthly sales for the first time. Gordon Metcalf succeeded Cushman as chairman that year. In 1970 Allstate Enterprises, a subsidiary that had been formed in 1960, acquired Metropolitan Savings and Loan Association, the first of several savings and loans it would purchase over the next two decades. Also in 1970, construction began in Chicago on the 110-story Sears Tower. Completed in 1974, the Sears Tower is the tallest building in the world and a symbol of corporate pride at a time when Searss dominance of U.S. retailing was unchallenged.

That era was fading, however, even as its monument rose above the Chicago skyline. Arthur Wood (no relation to Robert Wood) succeeded Metcalf in 1973, and he would be the last of the Generals proteges to serve as chairman. Recession caused by skyrocketing oil prices led to a $170 million drop in profits in 1974 on only a modest sales increase, and financial performance remained flat through the middle of the decade. It became apparent to Wood and others that success had made Sears complacent and that it was ignoring some real problems.

The competition was getting serious. The specialty shops that filled the very malls anchored by Sears stores were cutting into market share, as were discounters like the resurgent S. S. Kresge Co., which changed its name to K mart Corporation in 1977. Robert Woods vaunted corporate democracy had turned into an ungainly feudal state. The buyers, given complete freedom, operated an internal economy of their own. Terrible inefficiencies and intramural rivalries resulted. Yet this system had become enshrined as the Sears way, and those who had flocked to the Generals banner believed in it. Decentralization peaked under Gordon Metcalf; he was known to consult with his territorial chiefs on problems, then leave the solution to them, saying, You boys just work it out.

Hard times meant that these shortcomings could no longer be obscured by success or justified in the name of tradition. Sears had to be shaken up, and it fell to Edward Telling, a company veteran who succeeded Arthur Wood in 1978, to do it. As head of the eastern territory, Telling had smashed local concentrations of power in the name of efficiency, and he proceeded to do the same for the parent company, centralizing all buying and merchandising operations. The territorial bureaucracies were slowly eliminated.

The Generals ghost took a while to exorcise. Income declined from 1978 to 1980 and was subjected to intense scrutiny by Wall Street. Outsiders were not always impressed by Telling, a downstate Illinois native whose homespun manner tended to concealoften by choicehis erudition and keen intellect. It was through his guidance that Sears undertook a major corporate reorganization in 1981. This involved the formation of an overall holding company for its three business groups; the buying and merchandising operations; Allstate; and Seraco Group, which included Homart and other commercial real estate and residential real estate finance units.

Telling also saw the burgeoning financial services industry as one in which Sears should get involved. In 1981 Sears acquired Los Angeles-based Coldwell Banker Company, the nations largest real estate brokerage, and securities firm Dean Witter Reynolds Inc. When he retired at the end of 1985, Telling left Sears a radically different company from the one he had inherited. He had reined in Searss sprawling bureaucracy and taken the first steps toward complementing the companys store with a diversified financial services company with the size and capital to take on the industrys leaders.

He was succeeded by Edward Brennan, who, as chairman of the Merchandise Group under Telling, liked to preach that Sears was one big store and had labored tirelessly to centralize merchandising operations. In 1985 Sears unveiled its Discover Card, a combined credit and financial services card that would also offer savings accounts through Greenwood Trust Company, a bank that Allstate Enterprises, Inc., a Sears subsidiary, had acquired earlier that year. In 1987, perhaps conceding that the era of the big general merchant was over, the Merchandise Group launched a new strategy to turn Sears into a collection of specialty superstores. Sears acquired Eye Care Centers of America, and added Pinstripes Petites and Western Auto Supply the next year.

The companys financial performance was disappointing. Dean Witter and Coldwell Banker failed to show immediate benefits from their relationship with Sears. As Searss stock price lagged, takeover rumors circulated and the company pondered ways to increase shareholder value and stave off any possible attempt. In October 1988 Sears announced that it would sell Coldwell Bankers commercial real estate unit, buy back 10% of its own stock, and put the Sears Tower up for sale. Brennan, who had become company chairman in 1986, also announced a new, everyday low prices retail strategy that would reduce the number of sales and promotions, slashing everyday prices across the board instead.

These new moves, however, provided unsatisfactory solutions. The Sears Tower went on the block during a commercial real estate glut in downtown Chicago and no buyer could be found. Everyday low prices squeezed profit margins because of the companys still-bloated cost structure. Merchandise Group profits fell from more than $700 million in 1986 to $257 million in 1990. That year, the resurgent financial services divisions contributed the bulk of earnings, with Dean Witter posting its best year ever. In July 1990 Brennan added his old job as Merchandise Group chairman to his responsibilities. By the first quarter of 1991, however, layoffs and other cost-cutting measures had begun to take hold. Sears posted a $202.7 million profit, which included improved earnings for the Merchandise Group despite sluggish sales.

Whether or not Sears could sustain financial improvement through growing sales remained to be seen in the early 1990s. Brennan, representing the third generation of his family to work for Sears, was under considerable pressure from investors and the financial press to turn the company around and increase outsider representation on the board of directors. It is also true that the outcry over Searss decline had been so sharp only because Sears started from such a great height. For decades, Sears has carved out its place in U.S. life. In the mid-1980s it was estimated that one in 30 living Americans had worked for the company in some way at some time. It had made many of those members of the U.S. work force comfortable retirees through its profit-sharing plan. It was their return for their service and belief in a cause that the company had embodied since the days of Richard Sears: the material prosperity of working people.

Principal Subsidiaries

Sears Roebuck Acceptance Corp.; Sears Overseas Finance N.V. (Netherlands Antilles); Allstate Insurance Company; Sears Consumer Financial Corporation; Cold well, Banker & Company; Cold well Banker Real Estate Group, Inc.; Dean Witter Financial Services Group Inc.; Sears Consumer Financial Corporation; Sears Canada Inc.

Further Reading

Searss War, Fortune, September, 1942; McDonald, John, Sears Makes It Look Easy, Fortune, May, 1964; Emmet, Boris, and John E. Jeuck, Catalogues & Counters: A History of Sears, Roebuck & Company, Chicago, University of Chicago Press, 1965; Weil, Gordon L., Sears, Roebuck, U.S.A., New York, Stein and Day, 1977; Loomis, Carol J., The Leaning Tower of Sears, Fortune, July 2, 1979; Katz, Donald R., The Big Store, New York, Viking, 1987; Oneal, Michael, Sears Faces a Tall Task, Business Week, November 14, 1988; Bremner, Brian, and Michael Oneal, The Big Stores Big Trauma, Business Week, July 10, 1989; Siler, Julia Flynn, Laura Zinn, and John Finotti, Are the Lights Dimming for Ed Brennan? Business Week, February 11, 1991.

Douglas Sun

Sears, Roebuck and Co.

views updated May 18 2018

Sears, Roebuck and Co.

3333 Beverly Road
Hoffman Estates, Illinois 60179
U.S.A.
Telephone: (847) 286-2500
Fax: (800) 427-3049
Web site: http://www.sears.com

Public Company
Incorporated:
1906
Employees: 241,000
Sales: $41.4 billion (2002)
Stock Exchanges: New York Chicago London Amsterdam Pacific Swiss EBS Dusseldorf
Ticker Symbol: S
NAIC: 452110 Department Stores; 454110 Electronic Shopping and Mail Order Houses; 441310 Automotive Parts and Accessories Stores; 442299 All Other Home Furnishings Stores; 444130 Hardware Stores

With a network of more than 870 full-line department stores and 1,300 freestanding specialty stores in the United States and Canada, Sears, Roebuck and Co. is the worlds fourth largest retailer. For more than a century Sears has provided consumers with top brand names synonymous with durability and quality. Craftsman tools, Kenmore appliances, Diehard car batteries, and WeatherBeater paint are a just a few of its most recognized products; Sears also provides a variety of competitively priced apparel for men, women, and children featuring its own brands (Canyon River Blues, Covington, TKS Basics) and such staples as Levis jeans and Nike athleticwear. A newer addition to its empire came with catalogue and online retailer Lands End, acquired in 2001.

Humble Beginnings: Late 1880s to 1914

Sears bears the name of Richard W. Sears, who was working as a North Redwood, Minnesota, freight agent for the Minneapolis and St. Louis Railroad in 1886 when a local jeweler gave him an unwanted shipment of pocket watches rather than return them to the manufacturer. Sears sold them to agents down the line who then resold them at the retail level. He ordered and sold more watches and within six months made $5,000. He quit the railroad and founded the R.W. Sears Watch Company in Minneapolis.

Business expanded so quickly that Sears moved to Chicago in 1887 to be in a more convenient communications and shipping center. Soon customers began to bring in watches for repairs. Since he knew nothing about fixing them, Sears hired Alvah Roebuck, a watch repairman from Indiana, in 1887. A shrewd and aggressive salesmana colleague once said of him, He could probably sell a breath of airSears undersold his competition by buying up discontinued lines from manufacturers and passing on the discounts to customers. At various times from 1888 to 1891, thinking himself bored with the business, Sears sold out to Roebuck but came back each time.

In 1888 the company published the first of its famous mailorder catalogues. It was 80 pages long and advertised watches and jewelry. Within two years the catalogue grew to 322 pages, filled with clothes, jewelry, and such durable goods as sewing machines, bicycles, and even keyboard instruments. In 1894 the catalogue cover proclaimed Sears was the Cheapest Supply House on Earth.

The company changed its name to its current form in 1893, but Alvah Roebuck, uncomfortable with his partners financial gambles, sold out his share two years later and remained with the firm as a repairman. Sears promptly found two new partners to replace Roebuck: local entrepreneur Aaron Nusbaum and Nusbaums brother-in-law, haberdasher Julius Rosenwald. The company recapitalized at $150,000, with each man taking a one-third stake. The company continued to prosper; when the cantankerous Nusbaum was forced to sell out in 1901 after clashing with Sears, his interest was worth $1.25 million.

There was little harmony between the two remaining partners, Rosenwald and Sears. Sears believed in continuous expansion and risk-taking; Rosenwald advocated consolidation and caution. Rosenwald also objected to his partners fondness for the hard sell in the catalogue and advertising copy. Had the Federal Trade Commission existed then, some of the companys advertising practices probably would not have passed musterbut it should be mentioned that Richard Sears invented the unconditional money-back guarantee and stood by it.

In 1905 construction began on a new headquarters plant on Chicagos west side to consolidate all of the companys functions. To help raise the necessary capital, Sears went public in 1906. Yet Wall Street was leery of the incautious Richard Sears and he resigned as president in 1908 when it became clear he was obstructing the firms progress. He was appointed chairman, but his heart was never in the job and he retired in 1913, never having presided over a board meeting. Sears died the following year at the age of 50. Near the end of his life, he summarized his career as a merchant: Honesty is the best policy. I know, Ive tried it both ways.

New Leadership and Growth: 1915 to the Late 1920s

Sears was now Julius Rosenwalds company to run and he did it with such skill and success he became one of the richest men in the world. Sales rose sixfold between 1908 and 1920, and in 1911 Sears began offering credit to its customers at a time when banks would not even consider lending to consumers. During this time the company grew to the point where its network of suppliers, combined with its own financing and distribution operations, constituted a full-fledged economic system in itself. Rosenwalds personal fortune allowed him to become a noted philanthropisthe gave away $63 million over the course of his life, much of it to Jewish causes and to improve the education of Southern blacks. As a result of the latter, he became a trustee of the Tuskegee Institute and a good friend of its founder, Booker T. Washington.

The depression of the early 1920s dealt Sears a sharp blow. In 1921 the company posted a loss of $16.4 million and omitted its quarterly dividend for the first time. Rosenwald responded by slashing executive salaries and even eliminated his own. He was also persuaded to donate 50,000 shares from his personal holdings to the company treasury to reduce outstanding capital stock and restore the firms standing with its creditors. Sears thus weathered the crisis and benefited from the general prosperity that followed.

Rosenwald retired as president in 1924, retaining the chairmanship he had inherited from Richard Sears. He was succeeded by Charles Kittle, a former Illinois Central Railroad executive. In 1925 Sears began to take on its current shape when it opened its first retail outlet in Chicago. Seven more stores followed that year and by the end of the decade 324 outlets were in operation. Retailing became so successful for Sears that by 1931 the stores topped the catalogue in sales. The companys entry into retailing was the brainchild of vice-president Robert Wood, who was an executive at archrival Montgomery Ward before Rosenwald hired him in 1924. Wood was always known as the General after serving as the U.S. Armys Quartermaster General during World War I. He had also been chief quartermaster for the construction of the Panama Canal. He much preferred business to the military, however, and his long career in merchandising earned him a reputation for genius.

For its first 40 years, Sears had targeted the U.S. farmer as its main customer, luring him with a combination of down-home earthiness and the tantalizing prospect of material luxury. Two postal service innovationsthe rural free delivery system in 1891 and the parcel post rate in 1913had helped target this consumer by making it affordable to reach remote locations by mail. Sears quickly became parcel posts largest single customer. Then Wood saw that automobiles would soon make urban centers more accessible to outlying areas, broadening the customer base for retail outlets. Thwarted by the conservative top management at Wards, he wasted no time in implementing his vision at Sears. At first, the stores simply absorbed surpluses from the catalogue, but they soon began to offer a full range of goods. Sears also became the first chain to put free parking lots next to its stores. More than anyone else, it was Robert Wood who turned Sears into a leviathan.

Robert Wood Taking the Helm: 1929 to Mid-1940s

Charles Kittle died suddenly in 1928 and Wood succeeded him. In 1929 Sears arranged a merger between two of its suppliers, Upton Machine and Nineteen Hundred Washer Company, to form Nineteen Hundred Corporation, which changed its name to Whirlpool in 1950. Somewhat against its intentions, Sears became increasingly involved in the affairs of its suppliers, many of which were small companies whose outputs were almost entirely geared to its needs. Another leadership change occurred in 1932 when Julius Rosenwald died at the age of 69 and was succeeded as chairman by his son Lessing.

The onset of the Great Depression hurt sales from 1930 to 1934, but thanks to cost-cutting measures Sears posted a loss only in 1932. The company, in fact, had diversified in 1931 when it created its Allstate subsidiary (named after the companys own Allstate tires) to sell auto insurance. Wood saw it as another way to capitalize on the growing popularity of the automobile. He installed agent Carl Odell as general manager, an acquaintance who had suggested the idea as they commuted to work one day.

Lessing Rosenwald retired in 1939. Preoccupied with running his fathers estate, he had never attended a board meeting. Wood succeeded him, and the power of chief executive passed from the presidency to the chairmanship. At about this time, however, Wood also became controversial because of his prominent support for America First, an isolationist organization from which Charles Lindbergh made his notorious anti-Semitic speeches. Wood dropped his backing once the U.S. entered World War II and publicly supported the war effort, but remained a strong critic in private ever after.

Company Perspectives:

Sears, Roebuck and Co. is a leading retailer of apparel, home and automotive products and services, with annual revenue of more than $40 billion. The company serves families in the U.S. through Sears stores nationwide, through our catalogs, and through this web site.

As war loomed, Sears benefited from increases in military spending and a consumer buying panic. In 1941 sales reached an all-time high of $975 million, a 30 percent increase over the previous year. Sales then leveled off, however, and raw material shortages made durable goods hard to come by. Even as late as 1946 Sears had to refund $250 million in orders that could not be filled. Military procurement, however, helped make up for the shortfall. During the war, Sears supplied the Armed Forces with just about everything that did not need gunpowder to make it work, and even a few things that didas some factories belonging to Sears suppliers were converted into munitions plants by the War Department. Sears also began its first foreign ventures during and immediately after the war. In 1942 a store opened in Havana (later nationalized by the Castro government in 1960) and several opened in Mexico in 1947.

Woods Postwar Expansion: Mid-1940s to 1960s

Once the war ended Sears flourished with sales up to $1 billion in 1945, which doubled the next year. Anticipating an economic boom, Wood launched an aggressive expansion program. Concentrating on the Sun Belt states, he located many of the new stores in the path of suburban expansion before the areas built up. One store in California was established on a dairy farm and had cows roaming around the parking lot when it opened. Thanks to the Generals prescience, Sears left its rivals in its wake. In 1946 it held a small sales advantage over Montgomery Ward, but in 1954 posted sales of $3 billion while Ward, which had been slower to anticipate postwar trends, mustered only $1 billion. Sears also became a symbol of U.S. prosperity. In the late 1940s the Moscow bureau chief for the Associated Press reported that the most effective piece of foreign propaganda in the Soviet Union was the Sears catalogue.

At the same time, Sears became a widely hailed living experiment in corporate management. Wood had long wanted to decentralize the company and its postwar success gave him the luxury to remold it in his image of corporate democracy. The merchandising operations were carved up into five regional territories with each given a high degree of autonomy. Although buying operations remained centralized in theory, buyers were in fact allowed substantial independence. To its employees, many of them returned veterans (the company hired 50,000 people between 1946 and 1949 alone), Sears became, as author Donald Katz put it in The Big Store, a place where country boys and infantrymen could speak their minds and still roam free.

During the early 1950s Sears began to stock more clothing as durable goods sales slackened. The new postwar suburbanites who bought their first homes had already filled them with all the Sears appliances they needed. At about this time the company strengthened its ties with its suppliers even further. Between 1951 and 1960 Sears acquired virtually complete control of Warwick Electronics, which made televisions, radios, phonographs, and tape players. In 1961 it effected a merger between 15 of its soft goods suppliers and created the Kell wood Company.

Robert Wood retired in 1954 at the age of 75, but retained power over appointment of his successors until shortly before his death (in 1969). A series of caretaker chairmen followed him, none of whom served more than six years. In 1963 the company posted sales of $5.1 billion, and an executive with the discount chain Korvette quipped that Sears was not only the number one retailer in the United States, but also numbers two, three, four, and five. Surveys showed that one in five U.S. consumers shopped at Sears regularly; its sales volume was greater than that of some entire industries. The company had become big enough to justify its own shopping center development subsidiary, Homart Development, which had been formed in 1960.

Retailing Giant Beginning to Falter: Late 1960s to 1980

In 1967 Sears posted $1 billion in monthly sales for the first time. In 1970 Allstate Enterprises, a subsidiary formed in 1960, acquired Metropolitan Savings and Loan Association, the first of several savings and loans it purchased over the next two decades. Also in 1970, construction began in Chicago on the 110-story Sears Tower. Completed in 1974, the Sears Tower was the tallest building in the world for many years and a symbol of corporate pride at a time when Sears dominated U.S. retailing unchallenged.

Key Dates:

1886:
R.W. Sears Watch Company is founded in Minneapolis, Minnesota.
1887:
Richard Sears relocates to Chicago and Alvah Roebuck joins the fledgling company.
1888:
First mail-order catalogue is published.
1906:
Needing funds for expansion, Sears incorporates and goes public.
1911:
Sears begins offering its customers credit.
1925:
First Sears, Roebuck retail store is opened in Chicago.
1927:
Craftsman and Kenmore proprietary brands are introduced.
1945:
Annual sales top $1 billion for the first time.
1973:
The Sears Tower becomes the companys official headquarters in downtown Chicago.
1993:
Sears changes its image with a new advertising campaign.
1996:
Sears.com is launched.
2001:
Sears buys catalogue retailer Lands End and introduces the Covington label.
2003:
Citigroup announces plans to purchase Sears credit card business.

That era was fading, however, even as its monument rose above the Chicago skyline. Recession caused by skyrocketing oil prices led to a $170 million drop in profits in 1974 on only a modest sales increase, and financial performance remained flat through the middle of the decade. It became apparent to many that success had made Sears complacent and the company had long ignored some real problems. Competition was also getting serious. Specialty shops that filled the very malls anchored by Sears stores were cutting into market share, as were such discounters as the resurgent S.S. Kresge Co., which changed its name to Kmart Corporation in 1977. Hard times meant the companys shortcomings could no longer be obscured by success or justified in the name of tradition. Sears had to be shaken up, and it fell to Edward Telling, a company veteran who took the reins in 1978, to do it. Formerly head of the eastern territory, Telling had smashed local concentrations of power in the name of efficiency and proceeded to do the same for the parent company, centralizing all buying and merchandising operations. The once revolutionary territories were slowly eliminated.

Income declined from 1978 to 1980 and was subjected to intense scrutiny by Wall Street. Outsiders were not always impressed by Telling, a downstate Illinois native whose homespun manner tended to concealoften by choicehis erudition and keen intellect. It was through his guidance that Sears undertook a major corporate reorganization in 1981.

Diversification and Its Consequences: 198191

Telling also saw the burgeoning financial services industry as one in which Sears should get involved. In 1981 Sears acquired the Los Angeles-based Coldwell Banker Company, the nations largest real estate brokerage, and securities firm Dean Witter Reynolds Inc. Three years later, Sears launched Prodigy, an online service, with IBM and CBS. At the end of 1985 Telling retired and left a radically different company from the one he had inherited. He had reined in the once sprawling bureaucracy of Sears and taken the first steps toward diversifying into the burgeoning financial services market. Telling was succeeded by Edward Brennan, who had headed up the merchandising division, and had always preached that Sears was just one big store.

In 1985 the Discover Card was unveiled, a combined credit and financial services card that also offered savings accounts through Greenwood Trust Company, a bank acquired by Allstate Enterprises earlier in the year. By this time it was estimated that one in every 30 living Americans had worked for the company in some way at some time. In 1987, perhaps conceding that the era of the big general merchant was over, the merchandise division launched a new strategy to turn Sears into a collection of specialty superstores. The next year Sears acquired Eye Care Centers of America, Pinstripes Petites, and Western Auto Supply as its workforce reached an all-time high of 520,000. Yet the surge of adrenaline anticipated by Coldwell Banker and Dean Witter failed to materialize.

As stock prices lagged, takeover rumors circulated and management pondered ways to increase shareholder value and stave off possible attempts. In late 1988 Sears announced plans to sell Coldwell Bankers commercial real estate unit, the Sears Tower; it also planned to buy back some of its own stock. Further, Brennan, who had become company chairman in 1986, announced a new retail strategy of everyday low prices to reduce the number of sales and promotions. These new moves, however, provided unsatisfactory solutions. The Sears Tower went on the block during a commercial real estate glut in Chicago and no buyer was found. Lower prices squeezed profit margins because of the companys still-bloated cost structure. Merchandising profits fell from more than $700 million in 1986 to $257 million in 1990, as overall profits slid from over $1.3 billion to $892 million during the same period.

A Slimmer, Resurgent Sears: 199295

Whether or not Sears could sustain financial improvement through growing sales remained to be seen in the early 1990s. Brennan, representing the third generation of his family to work for Sears, was under considerable pressure from investors and the financial press to turn the company around and increase outsider representation on the board of directors. In 1992 the company slashed 47,000 jobs and suffered a shocking year-end loss of almost $2.3 billion on sales of $53.1 billion.

To stave further losses and concentrate on the companys department store roots, Brennan began what became the largest restructuring ever: he sold the Eye Care Centers, the remainder of Coldwell Banker (residential real estate), and spun off Dean Witter and the Discover card services. The automotive group, under siege after a service fraud scandal and 20 percent sales dive, quit repairs to concentrate on selling tires and batteries, then filled vacant bays through a deal with Pennzoils Jiffy Lube. In merchandising, Brennans handpicked successor, Arthur C. Martinez, moved quickly and decisively to put a shine to the tarnished Sears image. Catering to female consumers (estimated at 70 percent of sales), Martinez launched a far-reaching advertising campaign on the softer side of Sears, brought in more famous-name clothing items, and put the companys former mainstaythe 101-year-old catalogueout to pasture (smaller, specialized catalogues were later revived in 1994).

Year-end figures for 1993 supported the streamlining efforts and a $4 billion renovation program with lesser sales ($30.4 billion) but a return to profitability at $2.4 billion. By 1994 the Sears half-million-plus workforce had been whittled to less than 361,000, under performing stores were closed, and others enlarged to include national brand names. The company was also finally relieved of the Sears Tower (put in trust for transfer in 2003) and freed of $850 million of debt. The next year was filled with more immense changeBrennan retired and was succeeded by Martinez, and Allstate, the countrys largest publicly held property and casualty insurance carrier with over $20 billion in sales, was spun off. In addition, Martinez added further feminine touches to Sears with 152 Circle of Beauty in-store cosmetics boutiques providing skin care, fragrance, bath, makeup, and stress-relieving products.

To make way for the beauty lines, appliances, hardware and furniture were moved out of mall-based stores and into their own freestanding buildings (as Sears Hardware, Sears HomeLife and Sears franchise stores) to help serve the rural segment previously handled by the catalogue. Sears also followed rival J.C. Penneys lead and introduced its own line of denim sportswear under the Canyon River Blues label. Although Lee and Levis jeans had always been big sellers at Sears, the private label ran about $10 less and debuted with a splashy media campaign in late 1995.

In just seven months Canyon River Blues apparel rang up $100 million in sales. Likewise, the newly upgraded jewelry and shoe departments gained double-digit growth while Western Auto, the companys stalwart auto titan, spawned a line of aftermarket merchandise stores called Parts America, opening 30 stores in 1995 and planning another 60 for the following year. While revenue climbed only a notch to $34.9 billion for 1995, net income was a sturdy $1.8 billion with retail profits hitting $1 billion for the first time.

Roller Coaster Ride: 1996 to 2003

Another success story in the late 1990s was the Sears credit card, which contributed mightily to the companys revenue by attracting 6.4 million new cardholders in 1996 alone, bringing the nationwide total to 55 million. Other highlights of the year included Martinez being named Financial Worlds CEO of the Year and the purchase of Orchard Supply Hardware. Yet by the following year Sears had started to stall once again, so Martinez began trimming underperforming operations including selling off most of the firms stock in Sears Roebuck de México S.A., bailing out of the Prodigy/IBM joint venture, and surprising investors in 1998 by getting rid of Western Auto and its Parts America chain. Also on the selling block were the underperforming HomeLife furniture stores, with a majority stake (over 80 percent) sold to a subsidiary of Citicorp. As the downward slide continued, executives jumped ship, thousands were laid off, and Martinez himself left Sears in 2000.

Martinezs successor came from within the ranks as Alan J. Lacy took the reins in October 2000 as president and CEO and added chairman by the end of the year. As a former CFO and head of card services, Lacy was an insider and reportedly well liked by both board members and Wall Street. Although Sears rallied briefly with strong appliance sales and growth in its credit card revenues, apparel sales were weak. The well known softer side campaign had garnered plenty of attention and early success, but the words had come to mean something entirely different in the minds of investors. Despite the soft sales, however, there were steady gains in footwear and a new housewares concept called The Great Indoors.

In 2001 Sears aggressively touted its new gold MasterCard with a low introductory rate, hoping to convert many of its regular Sears credit cardholders to the more widely accepted format. Next came financing for the embattled HomeLife stores, but the move soon proved too little too late for the 133-store chain. Suffering a similar fate were the initially popular Circle of Beauty in-store boutiques (introduced in 1995); the beauty products line was discontinued in the summer of 2001 along with a fragrance joint venture with Avon (which continued a similar deal with rival J.C. Penney). A major makeover of the companys 867 stores was also underway, to better compete with J.C. Penney, Wal-Mart, Target, and rising star Kohls Department Stores. While 2001 year-end revenues rose slightly from the previous years figures ($41.1 billion vs. just under $41 billion), operating income fell from $1.3 billion in 2000 to $735 million for 2001 due to the various write-offs and cost-cutting measures. Cautiously optimistic, Lacy and his board members were soon ecstatic when share prices soared in early 2002, hitting $54 in April and $59 in May, seeming to herald the long-awaited turnaround.

The optimism, however, was short-lived. Sears had come to rely on its credit cards and financing operations too heavily. The Sears MasterCard, with 22 million cardholders, accounted for less than half the companys charge customers and the new card seemed to be cannibalizing its siblings. Lacys solution was to convert all Sears account holders to the MasterCard. A good idea, yet with higher credit limits and newly launched cash advances, defaults were soon on the rise. Coupled with still-sluggish apparel sales, Sears faltered once again: stock prices plummeted and heads rolled. The years only bright spot had been the June acquisition of catalogue and online retailer Lands End, for $1.8 billionthough some worried what was seen as a good move for Sears was a bad move for Lands End.

Would Lands End prove the venerable retailers savior? Or would the cost dimple an already taxed bottom line? In 2002 and 2003 these questions were answeredshort-term at leastwhen Sears once again bounced back. Both Lands End and a new basics label called Covington pumped up apparel sales, with revenues, income, and stock prices all gaining. Despite declines in credit card revenues, Sears continued to bolster its image with both consumers and Wall Street, for awhile. In 2003 such stalwarts as Wal-Mart and even fast-food giant McDonalds found themselves in a financial slump, and the same was once again true for Sears. Pink slips were given to hundreds of employees at the companys headquarters in Hoffman Estates, Illinois, and its credit card unitformerly a cash cowwas up for sale. In July Citigroup announced that it would purchase the companys credit card business for $3 billion. In addition to the much needed cash resulting from the deal, which was expected to close by year-end, Sears would retain another $3 billion it had in the business as a portfolio reserve.

Once the worlds largest retailer, Sears had suffered through almost four decades of turmoil. In 2003 the mass merchandiser was ranked fourth (behind Wal-Mart, Target, and Home Depot), with its future uncertain. Though updated full-line stores were making an impact with consumers, the instability of the economy and job losses made mall shopping more of a luxury than a necessity. Competition continued to be fierceWal-Mart and Target usually beat Sears in price, J.C. Penney spiffed up its teen lines, and upstart Kohls attracted customers in droves with brand-new stores and numerous splashy advertising campaigns. While Sears continued to struggle with its identity, what had not changed were its famously dependable appliances (Kenmore), tools (Craftsman), and selection of sturdy, low-priced apparel. With new private labels including Covington and the acquisition of Lands End, Sears endeavored to achieve the stability and sales it once took for granted.

Principal Subsidiaries

Lands End; NTB (National Tire & Battery); Orchard Supply Hardware; Sears Canada Inc.; Sears Consumer Financial Corp,; Sears DC Corp.; Sears Hardware; Sears de México, S.A.; Sears Overseas Finance N.V. (Netherlands); Sears Roebuck Acceptance Corp.

Principal Divisions

Lands End; Sears Auto Centers; Sears Hardware; Sears Home Improvement Services; Sears Optical; Sears Parts and Service; Sears Termite and Pest Control; The Great Indoors; National Tire Wholesale (NTW).

Principal Competitors

J.C. Penney Company, Inc.; Kohls Department Stores, Inc.; Target Stores; Wal-Mart Stores, Inc.

Further Reading

Applebaum, Alec, The Softer Side of Sears: A New CEO Tackles Fashion Troubles and More at the Retail Icon, Money, November 1, 2000, p. 44.

Baeb, Eddie, Lenders Give Life Support to HomeLife, Crains Chicago Business, May 28, 2001, p. 4.

Berner, Robert, The Fog Surrounding Lands End, Business Week, March 10, 2003, p. 78.

The Bottom Line, Business Record (Des Moines, Iowa), October 15, 2001, p. 22.

Bremner, Brian, and Michael ONeal, The Big Stores Big Trauma, Business Week, July 10, 1989.

Byrne, John A., Strategic Planning, Business Week, August 26, 1996, pp. 4652.

Chandler, Susan, Where Sears Wants America to Shop Now, Business Week, June 12, 1995.

Emmet, Boris, and John E. Jeuck, Catalogues & Counters: A History of Sears, Roebuck & Company, Chicago: University of Chicago Press, 1965.

Jones, Sandra, Big Stores Worry: Card Unit, Crains Chicago Business, October 14, 2002, p. 3.

Facenda, Vanessa L., Popping Open the Sears Umbrella, Retail Merchandiser, May 2001, p. 16.

Katz, Donald R., The Big Store: Inside the Crisis and Revolution at Sears, New York: Viking, 1987.

McMurray, Scott, Sears Fashions a New Future for Itself, U.S. News & World Report, May 13, 1996.

Omelia, Johanna, Circle of Beauty Squares Off at Sears, Drug & Cosmetic Industry, November 1995.

Oneal, Michael, Sears Faces a Tall Task, Business Week, November 14, 1988.

Pierce, J. J., Designer Jeans at Sears, Kmart Textiles in Tiers, Private Label, November/December 1995, p. 7.

Sears Restructuring Pays Off, MMR, February 10, 2003, pp. 79.

Sharoff, Robert, and Evan Clark, Sears Profits Take a 27.9 Percent Dive in Period, Daily News Record, October 21, 2002, p. 8.

Siler, Julia Flynn, Laura Zinn, and John Finotti, Are the Lights Dimming for Ed Brennan? Business Week, February 11, 1991.

Sparks, Debra, Arthur Martinez: Financial Worlds CEO of the Year, Financial World, March 25, 1996.

Underwood, Elaine, Jean-Etic License, Brandweek, May 29, 1995, pp. 1, 6.

Veverka, Mark, That Softer Side of Sears Still Has Taste for Auto Grit, Crains Chicago Business, May 29, 1995.

Weil, Gordon L., Sears, Roebuck, U.S.A., New York: Stein and Day, 1977.

Worthy, James C., Shaping an American Institution: Robert E. Wood and Sears, Roebuck and Company, Urbana: University of Illinois, 1984.

Douglas Sun

update: Nelson Rhodes

Sears, Roebuck and Co.

views updated May 23 2018

Sears, Roebuck and Co.

3333 Beverly Road
Hoffman Estates, Illinois 60179
U.S.A.
(847) 286-2500
Fax: (800) 427-3049
Web site: http://www.sears.com

Public Company
Incorporated:
1906
Employees: 275,000 (1995)
Sales: $34.9 billion (1995)
Stock Exchanges: New York
SICs: 5311 Department Stores; 5961 Catalogue and Mail Order; 7629 Electrical Repair

Sears, Roebuck and Co. is one of the few U.S. corporations whose name is virtually synonymous with an entire business segment: retail. Although Sears formerly sold insurance (Allstate), real estate (Coldwell Banker), and financial services (Dean Witter), the company sold or spun off its nonretail assets (including the famed Sears Tower) in the 1990s to concentrate on the original source of its fame. For decades, Sears prided itself on being the U.S. middle classs primary general goods merchant, the place where average people bought everything from clothes and auto supplies to sporting goods and refrigerators at an affordable price. This changed forever during Searss overhaul, as hard goods were moved from mall-based stores to free-standing facilities, and the softer side of Sears was pumped up with better womens clothing, a new line of cosmetics and beauty products, and family denimwear under the Canyon River Blues label.

Humble Beginnings, Late 1800s to 1914

Sears bears the name of Richard W. Sears, who was working as a North Redwood, Minnesota, freight agent for the Minneapolis and St. Louis Railroad in 1886 when a local jeweler gave him an unwanted shipment of pocket watches rather than return them to the manufacturer. Sears sold them to agents down the line, who resold them at the retail level. He ordered and sold more watches, and within six months made $5,000. He quit the railroad and founded the R.W. Sears Watch Company in Minneapolis.

Searss business expanded so quickly that he moved to Chicago in 1887 to be in a more convenient communications and shipping center. Soon customers began to bring in watches for repairs. Since he knew nothing about fixing them, Sears hired Alvah Roebuck, a watch repairman from Indiana, in 1887. A shrewd and aggressive salesmana colleague once said of him, He could probably sell a breath of airSears undersold his competition by buying up discontinued lines from manufacturers and passing on the discounts to customers. At various times from 1888 to 1891, thinking himself bored with the business, he sold out to Roebuck, but came back each time.

In 1888 Sears published the first of its famous mail-order catalogues. It was 80 pages long and advertised watches and jewelry. Thanks to Richard Searss restless search for new merchandise, within two years the catalogue had grown to 322 pages, selling clothes, jewelry, and such durable goods as sewing machines, bicycles, and even keyboard instruments. In 1894 the catalogue cover proclaimed that Sears was the Cheapest Supply House on Earth.

The company changed its name to its current form in 1893, but Alvah Roebuck, uncomfortable with Searss financial gambles, sold out his share two years later and remained with the firm as a repairman. Sears promptly found two new partners to replace him: local entrepreneur Aaron Nusbaum and Nusbaums brother-in-law, haberdasher Julius Rosenwald. The company recapitalized at $150,000, with each man taking a one-third share. The company continued to prosper, so much so that when the cantankerous Nusbaum was forced to sell out in 1901 after clashing with Sears, his interest was worth $1.25 million.

There was little harmony between the two remaining partners, however. Sears believed in continuous expansion and risk-taking, while Rosenwald advocated consolidation and caution. He also objected to Searss fondness for the hard sell in his catalogue and advertising copy. Had the Federal Trade Commission existed then, some of Searss advertising practices probably would not have passed muster; it should be said in Searss defense, however, that he invented the unconditional money-back guarantee and stood by it.

In 1905 construction began on a new headquarters plant on Chicagos west side to consolidate all of the companys functions. To help raise the necessary capital, Sears went public in 1906. Yet Wall Street was leery of the incautious Richard Sears, and he resigned as president in 1908 when it became clear that he was obstructing the companys way in the capital markets. He was appointed chairman, but his heart was never in that job. He retired in 1913, never having presided over a board meeting and died the following year at the age of 50. Near the end of his life, he summarized his career as a merchant: Honesty is the best policy. I know, Ive tried it both ways.

New Leadership and Growth, 1915 to the Late 1920s

Sears was now Julius Rosenwalds company to run, and he did it with such skill and success he became one of the richest men in the world. Sales rose sixfold between 1908 and 1920, and in 1911 Sears began offering credit to its customers at a time when banks wouldnt even consider lending to consumers. During this time the company grew to the point where its network of suppliers, combined with its own financing and distribution operations, constituted a full-fledged economic system in itself. Rosenwalds personal fortune allowed him to become a noted philanthropisthe gave away $63 million over the course of his life, much of it to Jewish causes and to improve the education of Southern blacks. As a result of the latter, he became a trustee of the Tuskegee Institute and a good friend of its founder, Booker T. Washington.

The depression of the early 1920s dealt Sears a sharp blow. In 1921 the company posted a loss of $16.4 million and omitted its quarterly dividend for the first time. Rosenwald responded by slashing executive salaries and even eliminated his own. He was also persuaded to donate 50,000 shares from his personal holdings to the company treasury to reduce outstanding capital stock and restore Searss standing with its creditors. Sears thus weathered the crisis and benefited from the general prosperity that followed.

Rosenwald retired as president in 1924, retaining the chairmanship he had inherited from Richard Sears. He was succeeded by Charles Kittle, a former Illinois Central Railroad executive. In 1925 Sears began to take on its current shape when it opened its first retail outlet in Chicago. Seven more stores followed that year, and by the end of the decade 324 outlets were in operation. Retailing became so successful for Sears that by 1931, the stores topped the catalogue in sales. Searss entry into retailing was the brainchild of vice president Robert Wood, who was an executive at archrival Montgomery Ward before Rosenwald hired him in 1924. Wood was always known as the General after serving as the U.S. Armys Quartermaster General during World War I. He had also been chief quartermaster for the construction of the Panama Canal. He much preferred business to the military, however, and his long career in merchandising earned him a reputation for genius.

For its first 40 years, Sears had targeted the U.S. farmer as its main customer, luring him with a combination of down-home earthiness and the tantalizing prospect of material luxury. Two postal service innovationsthe rural free delivery system in 1891 and the parcel post rate in 1913had helped target this consumer by making it affordable to reach remote locations by mail. Sears quickly became parcel posts largest single customer. Then Wood saw that automobiles would soon make urban centers more accessible to outlying areas, broadening the customer base for retail outlets. Thwarted by the conservative top management at Wards, he wasted no time in implementing his vision at Sears. At first, the stores simply absorbed surpluses from the catalogue, but they soon began to offer a full range of goods. Sears also became the first chain to put free parking lots next to its stores. More than anyone else, it was Robert Wood who turned Sears into a leviathan.

Robert Wood Takes the Helm, 1929 to the Mid-1940s

Charles Kittle died suddenly in 1928, and Wood succeeded him. In 1929 Sears arranged a merger between two of its suppliers, Upton Machine and Nineteen Hundred Washer Company, to form Nineteen Hundred Corporation, which changed its name to Whirlpool in 1950. Somewhat against its intentions, Sears became increasingly involved in the affairs of its suppliers, many of which were small companies whose outputs were almost entirely geared to its needs. Another leadership change occurred in 1932, when Julius Rosenwald died at the age of 69 and was succeeded as chairman by his son Lessing.

The onset of the Great Depression hurt sales badly from 1930 to 1934, but thanks to cost-cutting measures, Sears posted a loss only in 1932. The company, in fact, diversified in 1931 when it created its Allstate subsidiary (named after the companys own Allstate tires) to sell auto insurance. Wood saw it as another way to capitalize on the growing popularity of the automobile. He installed as general manager insurance agent Carl Odell, an acquaintance who had suggested the idea as they commuted to work one day.

Company Perspectives:

With its network of more than 800 full-line department stores and 1,500 off-the-mall stores, Sears is a leading retailer of apparel, home and automotive products, and related services for families throughout North America, and is the nations number one credit card provider among retailers, serving more than 50 million households.

Lessing Rosenwald retired in 1939. Preoccupied with running his fathers estate, he had never attended a board meeting. Wood succeeded him, and the power of chief executive passed from the presidency to the chairmanship. At about this time, however, Wood also became controversial because of his prominent support for America First, an isolationist organization that was the vehicle through which Charles Lindbergh made his notorious anti-Semitic speeches. Wood dropped his backing once the U.S. entered World War II and publicly supported the war effort, but remained a strong critic in private ever after.

As war loomed, Sears benefitted from increases in military spending and a consumer buying panic. In 1941 sales reached an all-time high of $975 million, a 30 percent increase over the previous year. Sales then leveled off, however, and raw material shortages made durable goods hard to come by. Even as late as 1946, it had to refund $250 million in orders that couldnt be filled. Military procurement helped make up for the shortfall. During the war, Sears supplied the Armed Forces with just about everything that didnt need gunpowder to make it work, and even a few things that didas some factories belonging to Sears suppliers were converted into munitions plants by the War Department. Sears also began its first foreign ventures during and immediately after the war. In 1942 a store opened in Havana (later nationalized by the Castro government in 1960), and several opened in Mexico in 1947.

Woods Postwar Expansion, Mid-1940s to 1960s

Once the war ended, Sears flourished with sales up to $1 billion in 1945, and doubled the next year. Anticipating an economic boom, Wood launched an aggressive expansion program. Concentrating on the Sun Belt states, he located many of the new stores in the path of suburban expansion before the areas built up. One store in California was established on a dairy farm and had cows roaming around the parking lot when it opened. Thanks to the Generals prescience, Sears left its rivals in its wake. In 1946 it held a small sales advantage over Montgomery Ward, but in 1954 posted sales of $3 billion while Ward, which had been slower to anticipate postwar trends, mustered only $1 billion. Sears also became a symbol of U.S. prosperity. In the late 1940s the Associated Presss Moscow bureau chief reported that the most effective piece of foreign propaganda in the Soviet Union was the Sears catalogue.

At the same time, Sears became a widely hailed living experiment in corporate management. Wood had long wanted to decentralize the company, and its postwar success gave him the luxury to remold it in his image of corporate democracy. The merchandising operations were carved up into five regional territories, with each given a high degree of autonomy. Although buying operations remained centralized in theory, buyers were in fact allowed substantial independence. To its employees, many of them returned veterans (the company hired 50,000 people between 1946 and 1949 alone), Sears became, as author Donald Katz put it in The Big Store, a place where country boys and infantrymen could speak their minds and still roam free.

During the early 1950s, Sears began to stock more clothing as durable goods sales slackened. The new postwar suburbanites who bought their first homes had already filled them with all the Sears appliances they needed. At about this time, the company strengthened its ties with its suppliers even further. Between 1951 and 1960, it acquired virtually complete control of Warwick Electronics, which made Sears televisions, radios, phonographs, and tape players. In 1961 it effected a merger between 15 of its soft goods suppliers and created the Kellwood Company.

Robert Wood retired in 1954 at the age of 75, but retained power over appointment of his successors until shortly before his death (in 1969). A series of caretaker chairmen followed him, all of whom were favorites of his. None of them served more than six years. The first was Theodore Houser, who retired in 1958 and was succeeded by Fowler McConnell. McConnell was followed in 1960 by Charles Kellstadt, who served for two years and after whom the Kellwood Company was named. Austin Cushman succeeded Kellstadt and served until 1967.

In 1963 the company posted sales of $5.1 billion, and an executive with the discount chain Korvette quipped that Sears was not only the No. 1 retailer in the U.S., but also numbers two, three, four, and five. Surveys showed that one in five U.S. consumers shopped at Sears regularly; its sales volume was greater than that of some entire industries. The company had become big enough to justify its own shopping center development subsidiary, Homart Development, which had been formed in 1960.

The Retailing Giant Begins to Falter, Late 1960s to 1980

In 1967 Sears posted $1 billion in monthly sales for the first time. Gordon Metcalf succeeded Cushman as chairman that year. In 1970 Allstate Enterprises, a subsidiary formed in 1960, acquired Metropolitan Savings and Loan Association, the first of several savings and loans it purchased over the next two decades. Also in 1970, construction began in Chicago on the 110-story Sears Tower. Completed in 1974, the Sears Tower was the tallest building in the world for many years and a symbol of corporate pride at a time when Searss dominance of U.S. retailing was unchallenged.

That era was fading, however, even as its monument rose above the Chicago skyline. Arthur Wood (no relation to Robert Wood) succeeded Metcalf in 1973, and he was the last of the Generals proteges to serve as chairman. Recession caused by skyrocketing oil prices led to a $170 million drop in profits in 1974 on only a modest sales increase, and financial performance remained flat through the middle of the decade. It became apparent to Wood and others that success had made Sears complacent and the company had long ignored some real problems.

Competition was getting serious. Specialty shops that filled the very malls anchored by Sears stores were cutting into market share, as were discounters like the resurgent S.S. Kresge Co., which changed its name to Kmart Corporation in 1977. Robert Woods vaunted corporate democracy had turned into an ungainly feudal state. The buyers, given complete freedom, operated an internal economy of their own. Terrible inefficiencies and intramural rivalries resulted. Yet this system had become enshrined as the Sears way, and those who had flocked to the Generals banner believed in it. Decentralization peaked under Gordon Metcalf; he was known to consult with his territorial chiefs on problems, then leave the solution to them, saying, You boys just work it out.

Hard times meant these shortcomings could no longer be obscured by success or justified in the name of tradition. Sears had to be shaken up, and it fell to Edward Telling, a company veteran who succeeded Arthur Wood in 1978, to do it. As head of the eastern territory, Telling had smashed local concentrations of power in the name of efficiency and proceeded to do the same for the parent company, centralizing all buying and merchandising operations. Territorial bureaucracies were slowly eliminated.

The Generals ghost took a while to exorcise. Income declined from 1978 to 1980 and was subjected to intense scrutiny by Wall Street. Outsiders werent always impressed by Telling, a downstate Illinois native whose homespun manner tended to concealoften by choicehis erudition and keen intellect. It was through his guidance that Sears undertook a major corporate reorganization in 1981. This involved the formation of an overall holding company for its three business groups: the buying and merchandising operations, Allstate, and Seraco Group (which included Homart and other commercial real estate and residential real estate finance units).

Diversification and Its Consequences, 198191

Telling also saw the burgeoning financial services industry as one in which Sears should get involved. In 1981 Sears acquired the Los Angeles-based Coldwell Banker Company, the nations largest real estate brokerage, and securities firm Dean Witter Reynolds Inc. Three years later, Sears launched Prodigy, an online service, with IBM and CBS. At the end of 1985, Telling retired and left a radically different company from the one he had inherited. He had reined in Searss sprawling bureaucracy and taken the first steps toward complementing the companys store with a diversified financial services company having the size and capital to take on the industrys leaders.

Telling was succeeded by Edward Brennan, who, as chairman of the Merchandise Group under Telling, liked to preach that Sears was one big store and had labored tirelessly to centralize merchandising operations. In 1985 Sears unveiled its Discover Card, a combined credit and financial services card that also offered savings accounts through Greenwood Trust Company, a bank Allstate Enterprises had acquired earlier that year. By this time it was estimated that one in every 30 living Americans had worked for the company in some way at some time. In 1987, perhaps conceding that the era of the big general merchant was over, the Merchandise Group launched a new strategy to turn Sears into a collection of specialty superstores. The next year Sears acquired Eye Care Centers of America, Pinstripes Petites, and Western Auto Supply as its workforce reached an all-time high of 520,000. Yet the surge of adrenaline anticipated by Coldwell Banker and Dean Witter failed to materialize.

As Searss stock price lagged, takeover rumors circulated and management pondered ways to increase shareholder value and stave off possible attempts. In late 1988 Sears announced plans to sell Coldwell Bankers commercial real estate unit, the Sears Tower, and a 10 percent buyback of its own stock. Further, Brennan, who had become company chairman in 1986, announced a new retail strategy of everyday low prices to reduce the number of sales and promotions. These new moves, however, provided unsatisfactory solutions. The Sears Tower went on the block during a commercial real estate glut in Chicago and no buyer was found. Lower prices squeezed profit margins because of the companys still-bloated cost structure. Merchandise Group profits fell from more than $700 million in 1986 to $257 million in 1990, as overall profits slid from over $1.3 billion to $892 million during the same period.

In 1990 the financial services divisions contributed the bulk of earnings, with Dean Witter posting its best year ever. By the first quarter of 1991, layoffs and other cost-cutting measures had begun to take hold and at years end overall profit was back up to nearly $1.3 billion.

A Slimmer, Resurgent Sears, 1992 to Late 1990s

Whether or not Sears could sustain financial improvement through growing sales remained to be seen in the early 1990s. Brennan, representing the third generation of his family to work for Sears, was under considerable pressure from investors and the financial press to turn the company around and increase outsider representation on the board of directors. In 1992 the company slashed 47,000 jobs and suffered a shocking year-end loss of almost $2.3 billion on sales of $53.1 billion.

To stave further losses and concentrate on Searss department store roots, Brennan began what became the largest restructuring ever: he sold the Eye Care Centers, the remainder of Coldwell Banker (residential real estate), and spun off Dean Witter and the Discover card services. The Automotive Group, under siege after a service fraud scandal and 20 percent sales dive, quit repairs to concentrate on selling tires and batteries, then filled vacant bays through a deal with Pennzoils Jiffy Lube. Over in Merchandise, Brennans new hand-picked successor, Arthur C. Martinez, moved quickly and decisively to put a shine to Searss tarnished image. Catering to the companys female consumers (estimated at 70 percent of sales), Martinez launched a far-reaching advertising campaign on the softer side of Sears, brought in more famous-name clothing items, and put the companys former mainstaythe 101-year-old catalogueout to pasture (smaller, specialized catalogues were revived in 1994).

Year-end figures for 1993 supported the streamlining efforts and a $4 billion renovation program with lesser sales ($30.4 billion) but a return to profitability at $2.4 billion. By 1994 Searss half-million-plus workforce had been whittled to less than 361,000, underperforming stores were closed, and others enlarged by a total of 3.4 million square feet to include national brand names other than its own eponymous label. The company was also finally relieved of the Sears Tower (put in trust for transfer in 2003) and freed of $850 million of debt. The next 12 months marked a year filled with more immense changeBrennan retired and was succeeded by Martinez, the Homart division was sold, and Allstate, the countrys largest publicly-held property and casualty insurance carrier with over $20 billion in sales, was spun off.

In 1995 Martinez added further feminine touches to Sears with 152 Circle of Beauty cosmetics boutiques, a joint venture providing skin care, fragrance, bath, makeup, and stress-relieving products. To make way for the beauty lines, appliances, hardware and furniture were moved out of mall-based stores and into their own free-standing buildings (as Sears Hardware, Sears HomeLife and Sears franchise stores) to help serve the rural segment previously handled by the catalogue. Additionally, Sears followed rival J.C. Penneys lead and introduced its own line of denim sportswear under the Canyon River Blues label. Although Lee and Levis jeans were big sellers at Sears, the private label ran about $10 less and debuted with a splashy media campaign in late 1995.

Searss ongoing turnaround was a rousing success. Canyon River Blues rang up $100 million in just seven months, newly upgraded jewelry and shoe departments perked up 28 percent and 13 percent respectively, and Western Auto, the companys stalwart auto titan, spawned a line of aftermarket merchandise stores called Parts America, opening 30 stores in 1995 and 60 in 1996. When 1995 closed, Sears had bounced back with a vengeance: sales climbed a notch to $34.9 billion but net income was a sturdy $1.8 billion, with retail profits hitting $1 billion for the first time.

Another secret of Searss success, its credit card, had contributed mightily to the companys revenue by signing up 6.4 million new cardholders in 1996 alone. With over 55 million cardholders nationwide, Searss credit services pumped in mounds of profit (most recent figures were from 1993, with income of $706 million). Wall Street had also taken notice, as stock rose from $15 in 1992 to $51 in early 1996, about the time Martinez was named Financial Worlds 22nd annual CEO of the Year. But Martinez had yet to slow down, and plans for the future were already firmly in place: adding another 285 to 350 mall-based department stores during the remainder of 1996, while 500 Sears Hardware stores, 250 HomeLife stores, and 800 independently-owned Sears dealers were planned by the year 2000.

As Sears headed into the next century its founders would undoubtedly have been proud of the company bearing their names. Though it slipped into an identity crisis (was it a department store, a discounter, a specialty store, or a bizarre combination of one or more?) and corporate disarray, perhaps the outcry over Searss decline was so sharp because the company had carved out a special niche in both U.S. retailing and life in general. Called the ultimate Sears repairman by Financial World, Martinezs efforts have been lauded world-widebut most especially by U.S. consumers who hoped his efforts wouldnt be the last on behalf of this American icon.

Principal Divisions

Sears; Sears Auto Centers; Sears Brand Central; Sears Canada; Sears Consumer Financial Corp.; Sears Hardware; Sears HomeLife; Sears Mexico; Sears Overseas Finance N.V. (Netherlands); Sears Roebuck Acceptance Corp.; National Tire Wholesale (NTW); Parts America; Tire America; Western Auto.

Further Reading

Berlinski, Peter, and Pierce, J. J., Circle of Beauty Program Makes Over Sears Image, Private Label, November/December 1995, pp. 16.

Bremner, Brian, and Michael Oneal, The Big Stores Big Trauma, Business Week, July 10, 1989.

Byrne, John A., Strategic Planning, Business Week, August 26, 1996, pp. 4652.

Chandler, Susan, Where Sears Wants America to Shop Now, Business Week, June 12, 1995.

Emmet, Boris, and John E. Jeuck, Catalogues & Counters: A History of Sears, Roebuck & Company, Chicago: University of Chicago Press, 1965.

Katz, Donald R., The Big Store, New York: Viking, 1987.

Loomis, Carol J., The Leaning Tower of Sears, Fortune, July 2, 1979.

McDonald, John, Sears Makes It Look Easy, Fortune, May 1964.

McMurray, Scott, Sears Fashions a New Future for Itself, U.S. News & World Report, May 13, 1996.

Omelia, Johanna, Circle of Beauty Squares Off at Sears, Drug & Cosmetic Industry, November 1995.

Oneal, Michael, Sears Faces a Tall Task, Business Week, November 14, 1988.

Pierce, J. J., Designer Jeans at Sears, Kmart Textiles in Tiers, Private Label, November/December 1995, p. 7.

Sears War, Fortune, September, 1942.

Siler, Julia Flynn, Laura Zinn, and John Finotti, Are the Lights Dimming for Ed Brennan? Business Week, February 11, 1991.

Sparks, Debra, Arthur Martinez: Financial Worlds CEO of the Year, Financial World, March 25, 1996.

Underwood, Elaine, Jean-Etic License, Brandweek, May 29, 1995, pp. 1,6.

Veverka, Mark, That Softer Side of Sears Still Has Taste for Auto Grit, Crains Chicago Business, May 29, 1995.

Weil, Gordon L., Sears, Roebuck, U.S.A., New York: Stein and Day, 1977.

Douglas Sun

updated by Taryn Benbow-Pfalzgraf

Sears, Roebuck and Co.

views updated Jun 11 2018

Sears, Roebuck and Co.

also known as: sears

founded: 1893



Contact Information:

headquarters: 3333 beverly rd.
hoffman estates, il 60179 phone: (847)286-2500 fax: (800)427-3049 url: http://www.sears.com

OVERVIEW

In 1998 Sears had a network of 833 full-line mall-based department stores and 2,697 freestanding specialty stores for a total of 3,530 stores in the United States. Domestic operations purchased goods from approximately 4,500 domestic suppliers. With a new commitment to its retail stores, Sears has sold off many of its non-core businesses to focus on apparel, furniture, and hardware. The list of Sears' former businesses includes Allstate Insurance, Dean Witter, Discover Card, Homart shopping center developers, and Prodigy. The company has also discontinued the Sears catalog and sold its headquarters, the Sears Tower. Maintaining its Home Life, Sears Hardware, automotive retailing, and clothing stores, Sears' goal has been to scale the company down to a profitable business.

The strategy of becoming a top consumer brand and service company has shown results. The company went from a loss of $3.9 billion in 1992 to a net income of $1.2 billion in 1997. While some analysts are cautious about the amount of income derived from Sears' interest charges on its credit card, most of Wall Street likes the direction the company is taking.

Aggressively marketing to its core customer, a woman between the ages of 25 and 35, has paid off for Sears. Mall stores were redesigned; newer and better fashions were added; and displays were modernized. The advertising campaign "Come See the Softer Side of Sears" was wildly successful. Sales rose 21.2 percent from 1992 to 1997 ($41.3 billion to $52.4 billion. Although the company's focus is growth through smaller, freestanding stores, Sears is not ignoring its mall stores. Sears views the mall stores as its core, and if the stores declined as they did in the late 1980s to early 1990s, the company could fail.



COMPANY FINANCES

In 1997, there were strong gains in almost all of Sears' divisions; the two exceptions were the automotive group and the credit card division. Taking into consideration the divisions Sears had spun off, the company's market value rose $15 billion in the five years from 1992 to 1997. In 1996 sales were up 9.3 percent, from $34.8 billion to $38.1 billion. Sales rose 8.5 percent from 1996 to 1997, with $41.3 billion reported. However, profits fell, with the company reporting net income of $1.8 billion in 1995, $1.3 billion in 1996, and $1.2 billion in 1997. This decline was attributed to the costs of spinning off divisions, reorganizing the company, and bad credit card debt. During a 52–week period the company's stock ranged from a high of $65 to a low of $38.



ANALYSTS' OPINIONS

Analysts have been impressed with the comeback of Sears. Customers, experts say, have come back to Sears with a new attitude toward a formerly out-of-touch company. While Sears' success is attributable in part to its changes in retailing, its biggest business is, in fact, in lending. Eighty percent of Sears' credit card customers maintain monthly balances with the attached interest rate of approximately 21 percent. Edward Weller, managing director of Robertson, Stephens & Co. in San Francisco, has computed that Sears' operating margin on goods was 2.6 percent in 1995 as opposed to a 54.1 percent margin on credit. Analysts who agree with Weller have claimed that a company that remains highly dependent upon credit card interest is a company that remains highly subject to economic cycles. During a recession, consumers will buy less merchandise, which would hurt any company. However,these analysts contend Sears would be hurt more because customers would buy less and charge less.

A related controversy centered on a 1997 investigation into the company's treatment of bankrupt credit card holders. Officials at the U.S. Department of Justice and the Federal Trade Commission launched an investigation to determine whether Sears led credit card holders who had declared bankruptcy to believe they must repay debt that was revoked by bankruptcy court. Sears asserted that from 1992 to February 1997, it accumulated $400 million in "reaffirmation agreements" with card holders willing to pay back debt. Nonetheless, Sears agreed to launch a plan in 1997 to refund payments made by some debtors. The company settled lawsuits filed in the matter totalling $320 million.

Some analysts agree with Martinez's vision of Sears' future to continue the company's upward climb. They say that Sears' plan to go to smaller and specialty stores, as well as investments in core brands, points to strength and growth.




HISTORY

Buying a shipment of returned watches, Richard W. Sears started the R. W. Sears Watch Co. in 1886. He hired watchmaker Alvah C. Roebuck the following year. By 1889 the watch business was sold and a mail-order company, Sears, Roebuck, and Co., was formed. Offering good prices and money-back guarantees, the company introduced its first catalog in 1896. Roebuck left in 1895, and Sears brought in new partners Aaron Nussbaum and Julius Rosenwald. Sears left in 1908 due to differences of opinion with Rosenwald, who later became president of the company.

Sears established its first retail store in 1924, setting its sights on the opportunities the automobile would bring with farmers, the company's main customers at that time, driving to town to shop. In 1925 the company launched a tire line and followed it with an offering of auto insurance in 1931.

Looking to spread its business into other categories, Sears bought Hobart Development shopping centers in 1959, several savings and loans, Coldwell Banker (real estate), and Dean Witter Reynolds (stock brokerage) in 1981. Sears established the Discover credit card in 1985 and continued to branch out through the 1980s, even entering into a partnership with online service Prodigy in 1984. The company continued to experiment with various business strategies, including auto supplies and repairs, while lessening focus on its retail stores. The result of this diversification was disastrous; by 1992 the company had lost $3.9 billion. CEO Ed Brennan decided to go outside Sears for a successor, choosing the vice chairman of Saks Fifth Avenue, Arthur Martinez.

As CEO of the Sears Merchandise Group, Martinez shuttered 113 stores and closed the catalog division, eliminating 50,000 jobs. Brennan spun off Allstate, Coldwell Banker, Dean Witter, the Discover card, and sold the Sears Tower in Chicago. Martinez was named CEO of Sears, Roebuck, and Co, and set out on a $4 billion, five-year store modernization program. The company began to bounce back, and Martinez developed plans for growing. In the mid-1990s he began setting up freestanding specialty stores away from malls to sell hardware, furniture, and farming equipment.



STRATEGY

With the arrival of Martinez, Sears changed its marketing strategy. While the company had always assumed that its customer base was males, Martinez discovered the typical customers were females with an average household income of $38,000. This was the start of the innovative and successful advertising campaign, "The Softer Side of Sears."

Martinez has four main strategies: build small stores away from malls, build a service operation, invest in the Sears brands, and redesign existing mall stores with the core customer in mind. Furniture departments were moved out and makeup counters moved in, merchandising and displays were updated, and well-designed clothing was brought into the stores.

INFLUENCES

When the retail side of Sears became less important in the 1980s, the company floundered. Martinez vowed that would not happen again. With the spinoffs of unrelated companies in the mid-1990s, Sears was primarily a retailer again, for the first time since 1931. While the company plans to grow through specialty stores, money is also being pumped into the mall stores.

FAST FACTS: About Sears, Roebuck and Co.


Ownership: Sears, Roebuck and Co. is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: S

Officers: Arthur C. Martinez, Chmn. & CEO, 58, 1997 base salary $1,125,000; Robert L. Mettler, Pres., Merchandising Full-Line Stores, 57, 1997 base salary $700,000

Employees: 334,000 (296,000 located in the United States, 38,000 in Canada)

Principal Subsidiary Companies: Sears, Roebuck and Co.'s subsidiaries include: MaxServ; NTW; Sears Hardware; Sears HomeLife; Tire America; Western Auto Supply Co.; Parts America; AllAmerica Termite & Pest Control; Sears Canada, Inc.; and Sears, Roebuck de Mexico, S.A. deC.V.

Chief Competitors: Nationally, Sears competes against mid- to low-priced department stores, hardware stores, hardware manufacturers, and appliance stores. Major competitors include: Ace Hardware; Best Buy; Black & Decker; Circuit City; Home Depot; J.C. Penney; Montgomery Ward; and Wal-Mart.




One of the reasons Sears was in such bad shape was the corporate culture; there was only one way to do things—the way they had always been done. In order to change this attitude, Martinez kept few old-timers on when he took over, preferring instead to stock upper management with people who were specialists. Marketing is done by marketers, not retailers, for example. Before Martinez, managers who felt things were wrong were afraid to speak up, but this is no longer the case since Martinez values input and fresh ideas.

CURRENT TRENDS

In the 1980s the trend was cost cutting to bring revenues up, but in the 1990s it was company growth. Focusing on the company name and strengthening brand names are strategies Martinez may have learned from Disney and CocaCola. Sears will no longer mean the big store at the mall, rather, it will invoke a brand image among customers. In 1997, out of 380 new Sears stores, 358 were freestanding specialty outlets, while only 22 were mall department stores.

Another trend relevant to the company's direction was a newfound interest in striving to beat chief competitor J.C. Penney Co. As part of that effort, Sears launched two new private-label brands in 1997. One line, Mosaics, which is a collection of apparel by Alvin Bell, a designer for Saks Fifth Avenue and Neiman Marcus stores, has been established in hopes of attracting African-American and other minority women. Distributed in Chicago, Detroit, Philadelphia, Atlanta, and Brooklyn, the Mosaics brand was designed in a less-colorful, up-scale fashion for casual and working apparel.

With J.C. Penney expanding its men's apparel to include a Stafford Options line, Sears was challenged to compete. The company acknowledged that private labels are a rapidly growing sector that allow retailers to pay less for the apparel and to sell it at competitive prices. Sears was expected to further develop its own men's lines.

In Fortune magazine's annual survey of the country's most admired companies, Sears was always last in the innovation category. In 1997, though, it took first place in innovation among general-merchandise retailers.



PRODUCTS

Investing in Sears brands such as Kenmore, Craftsman, Canyon River Blues, and Crossroads, was the company's strategy for keeping customers. While competitors can imitate them, cut prices, and copy features, the names of the brands themselves remain a symbol of value.

Sears has always offered service on the products it sold, eventually adding home improvements, such as siding and roof replacement, to its service division. Done by subcontracting to local contractors, this often led to inconsistent service, marketing, and pricing. Now organized under Sears Home Central, there is one phone number, a centrally-run division, and appliances are repaired regardless where they were purchased.

In addition, in the mid-to late 1990s, the company was opening hundreds of specialty outlets, focused on hardware, furniture, and automotive. The company's goal was to have 5,000 stores by the year 2000, with 4,000 of them freestanding. Independently owned rural stores, were also being added. Sears supplies the tools, appliances, electronics, and the Sears sign. The local owners receive commissions on sales, and Sears gets access to rural customers.

CHRONOLOGY: Key Dates for Sears, Roebuck and Co.


1886:

Richard Sears starts the R.W. Sears Watch Co.

1887:

Sears hires watchmaker Alvah Roebuck

1889:

The watch company is sold and Sears, Roebuck, & Co. forms as a mail-order company

1895:

Alvah Roebuck leaves the company

1896:

The company introduces its first catalog

1908:

Richard Sears leaves the company

1924:

Sears, Roebuck & Co. opens its first retail store

1925:

Launches a tire line

1931:

Begins offering auto insurance through the subsidiary Allstate Insurance Co.

1942:

The first foreign Sears opens in Havana, Cuba

1959:

Sears purchases Hobart Development shopping centers

1969:

Sears begins building their new offices in downtown Chicago

1974:

The 110-story Sears Tower, the tallest building in the world, opens

1981:

Buys Dean Witter Reynolds stock brokers

1985:

Establishes the Discover credit card

1993:

Sells 20 percent of Dean Witter and Allstate Insurance and all of Caldwell banker and Sears Mortgage Banking

1995:

Sears sells the Sears Tower and moves the company headquarters

1997:

The company launches two private-label clothing brands




CORPORATE CITIZENSHIP

Teaming up with 17 Shriner's children's hospitals nationwide, Sears sponsored the Batteries for Kids program. For every auto battery returned to a Sears store, the program donates $1 toward batteries for children's wheelchairs. Another community venture was Sears' partnership with Gilda's Club, a nonprofit organization giving emotional and social support to cancer victims and their families. Named for comedienne Gilda Radner who died of ovarian cancer in 1989, Gilda's Club was to receive $1 million over a five-year period from Sears. Another joint effort to provide community services was a $1 million pledge with pop singer Gloria Estefan to local youth service organizations. The program, called OYE!, has given $20,000 in each tour city to one nonprofit organization that assists youth volunteers in dealing with pressing issues in their communities.




GLOBAL PRESENCE

Sears sold a 60-percent interest in Sears, Roebuck de Mexico in 1997 to Group Carso of Mexico. Sears has chosen to maintain a 15-percent interest in Sears Mexico with licensing privileges to use the company name in that country.

Sears Canada, Inc. has been a major international player. With 61.1 percent ownership of the Canadian company, Sears has become the largest individual retailer of general merchandise in Canada. In 1998 there were 110 Sears department stores, 95 freestanding specialty stores, and 1,551 catalog merchant agents throughout the country, with plans to add 35 more freestanding stores and 100 catalog agents. In line with recent efforts to better serve the customer and increase profits, Sears merged many of its Canadian operations. The strategy worked and the company reported that Sears Canada had shown a remarkable turnaround by the end of 1997.

Sears manages Home Life, Sears, Western Auto, and other retail stores in the United States and Canada. The United States accounted for 91.6 percent, or $37.8 billion of the company's total sales in 1997. Sales from Canada made up the remaining 8.4 percent, or $3.5 billion.

WHAT WOULD ROEBUCK SAY?

From what divisions does a company like Sears take in most of its revenue? Clothing? Appliances? Hardware? Try none of the above. In the mid-1990s, analysts concluded that the majority of Sears' revenue came from credit card interest. That's right, Sears' number one business isn't retailing, it's lending. The average Sears' customer carries approximately $1,000 on their credit card, far exceeding the paltry $275 balance carried by J.C. Penney cardholders. Charging purchases is good for Sears. The bad news is that companies like Sears that issue credit cards are vulnerable to interest-rate swings and the recent surge in personal bankruptcies, both of which directly affect the credit industry.




EMPLOYMENT

Although CEO Martinez stressed growth, not cost cutting, the company announced in late 1997 that it would cut back on benefits to retirees. The company's contribution will no longer be in effect for anyone retiring after 1999; the contribution for life insurance will gradually be cut back, and it will be completely phased out by the year 2000. Sears maintained that its benefits are still better than those of its competitors and that the move was necessary to control costs.

SOURCES OF INFORMATION

Bibliography

byrne, john a. "strategic planning." business week, 26 august 1996.

chandler, susan. "commentary: sears: are long-term profits in the cards?" business week, 25 november 1996.

goff, leslie. "beitler sees the data side of sears." computer-world, 15 september 1997.

greenwald, john. "reinventing sears." time, 23 december 1996.

"holders sue sears for alleged securities law violations." wall street journal, 15 april 1997

leonhardt, david, and wendy zellner. "bright lights, big store." business week, 17 march 1997.

mannix, margaret. "bankrupt deal." u.s. news & world report, 19 may 1997.

melley, brian. "sears admits errors in collecting debts." san diego daily transcript, 10 april 1997.

"sears dismantles retiree benefits." business and health, november 1997.

sears home page, 9 may 1997. available at http://www.sears.com.

"sears, roebuck and company." hoover's online, 5 may 1997. available at http://www.hoovers.com.

"sears roebuck earnings up 20 percent." reuters, 17 april 1997. available at http://pathfinder.com.

"sears sells 60% stake in mexico unit for $103m." wall street journal, 1 may 1997

"sears to refund payments of certain debtors." reuters, 10 april 1997. available at http://pathfinder.com.

"sears target of probe." reuters, 23 april 1997. available at http://cnnfn.com.

"sears targeting men, minority women." associated press, 12 february 1997. available at http://foxnews.com.

sellers, patricia. "sears: the turnaround is ending; the revolution has begun." fortune, 28 april 1997.

For an annual report:

on the internet at: http://www.sears.comor telephone: (800)732-7780 or write: sears shareholder relations dept., 3333 beverly rd. bsc b5-206b, hoffman estates, il 60179


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. sears' primary sic is:

5311 department stores

Sears, Roebuck and Co.

views updated Jun 11 2018

16
Sears, Roebuck and Co.

Examples of mail-order homes offered through the Sears Modern Homes program, 1908–40

"$100 set of building plans free. Let us be your architect without cost to you."

In 1906, a Sears, Roebuck and Co. employee named Frank Kushel was manager of the china department. Recognized for his merchandising skills, Kushel was assigned the task of dismantling the catalog company's building materials department. Although Sears had been in the mail-order business for nearly twenty years, sales in that particular department were down. Inventory was stored in warehouses across the country. Something had to be done.

After giving the situation careful consideration, Kushel approached his boss, Richard Sears (1863–1914), with an idea. Instead of trying to unload the building materials on another company, Kushel wanted to develop a mail-order program in which customers could order entire home-building kits. Sears would publish a catalog that offered customers a choice of floor plans and building styles. One order would allow customers to buy everything they needed to build their own homes, from the nails and hinges to windows, paint, and woodwork. Sears already published a general merchandise catalog that offered everything needed to furnish a home. It was hoped that the sale of a home-building kit would increase the sales of the furnishings, too.

Sears recognized the genius of Kushel's plan, and in 1908, published the first catalog of the Sears Modern Homes program. The warehouses across the country were emptied of their contents so that all lumber and supplies were located in the same place. For the cost of one dollar, customers could choose a building style and floor plan and would receive a Bill of Materials List and full blueprints in the mail. Once a customer sent in his or her payment, that dollar was applied toward the balance. Within a few weeks, everything needed to build a home would arrive by train to the railroad depot nearest the customer's location. Thirty thousand pieces of lumber, screws, nails, and other supplies were in the shipment that most recipients considered to be proof of the fulfillment of the American Dream.

According to Rosemary Thornton, Sears homes historian, that first catalog, called the Book of Modern Homes and Building Plans, offered forty-four house designs for a flat fee ranging from $695 to $4,115. Response was immediate and enthusiastic, as America's middle class saw their dreams of owning a home become a reality. Sears was not the first company to offer mail-order homes. North American Construction Company of Michigan offered Aladdin Houses and Readi-Cuts (their brand names) starting in 1906. But Sears had already been in business for over twenty years when it began selling its homes. As a company, it had earned America's trust and established a solid reputation as a dependable, quality-conscious retailer. Montgomery Ward, Sears's main competitor in general merchandise, did not begin selling house plans from a catalog until 1910. This was one department in which Sears outsold its competitor.

The word "modern" had a particular meaning when applied to the Sears homes program. Buyers could be certain their kits would include all the materials necessary for centralized heating, electricity, and indoor plumbing. In many cases, the homes themselves were more modern than the communities in which they were being built. For example, if an area did not yet have a city-wide water program, consumers had no need for concern. For an extra $30, builders could purchase an outhouse. Homes without bathrooms were being offered by Sears well into the 1920s.

In 1911, Sears took the program one step further and began to offer mortgage loans to its customers who could not afford to purchase the do-it-yourself kits outright. The application for the loan contained just one question: What is your vocation (job)? Regardless of the answer, if an applicant had a job, he was guaranteed a loan. Most loans were given for a period of five to fifteen years at an annual interest rate of 6 percent. These terms were generous and allowed nearly anyone with a steady income the chance to become a homeowner.

A Study in Advertising

A look through the Sears Modern Homes catalogs offers a glimpse into the changes of advertising in the early twentieth century. The earliest catalog ads focus on consumer need and use terms like "economical" and "extremely low price." The point of the advertising is to reassure consumers that they will get the most from their money, no matter how small the amount.

As the second decade of the century progressed, the houses were being marketed to consumers who wanted their money to reflect their status. Terms such as "for better class workers" and "will please the man who is looking for some thing really different from the general run of buildings in any vicinity" spoke to each individual's desire to have his or her peers recognize individual success. Sears's copywriters went so far as to claim that Modern Homes would improve the health, morals, and well-being of their occupants.

By the 1920s, the catalog was including a detailed list of all the items consumers would receive for their money. When possible, the ads would include endorsements of satisfied customers. As prices increased, so did the number of options available to consumers who wanted to customize their home to make it more fitting to their unique tastes and preferences.

The catalogs were printed in four-color press in the 1930s and featured monthly payment amounts rather than a flat fee. By incorporating and highlighting the lower dollar amount, advertisers appealed to a segment of society that would not have considered buying a home because the thousands of dollars required was beyond its means. Sears also changed its slogan to "America's New Low Cost Homes."

By 1939, the year before Sears discontinued its mail-order home program, black-and-white catalog pages offered very little information in terms of size, cost, and details of materials. Instead, the style of the catalog focused on the cleaner lines and images more popular during that time in history. One central figure was the exterior of the house, usually with one or two smaller illustrations of the interior layouts. Part of the reason for the return to black and white and the lack of important information was that Sears was no longer promoting their homes. Yet the neat, stylized ads remain evidence that even as the program was in its last years, the company still had a clear understanding of its modern customers.

Many Sears homes were a style known as a bungalow. Bungalows typically have low roofs with wide eaves (overhang of the lower edge of a roof). Outside, their porches usually have square columns, while inside, cabinets, shelves, and seating are often built into the walls. Bungalows are usually one to one-and-a-half stories tall. Often they have dormers (smaller windows projecting from the roof) and stone chimneys. These homes are known for their efficiency of space and simple lines. American bungalows tend to be simple, yet many families—then and now—have always found their layout and style to be attractive.

Things to remember while looking at images
from the Sears Modern Homes catalogs:

  • At the time of the development of the mail-order homes program, America's population was booming because of an increase in immigration (people moving to America from other countries) and the Industrial Revolution (approximately 1877–1900). Industrialization created more jobs, which in turn created a demand for affordable housing. At the same time, the strong economy increased the cost of labor, so new-home prices were at an all-time high. Workers who did not want to live in crowded urban areas needed single-family homes that could be built in suburbs. Most mail-order homes customers were middle-class Americans.
  • Sears homes were designed by architects who were focused not on innovation, but on modification. They did not try to invent new designs or layouts. Instead, these men took what they knew to be popular among American consumers and used those features to make the homes attractive to potential buyers. And always, they offered options, such as the ability to increase the total square footage or to change the type of windows installed.
  • In 1914, Sears improved its program by offering the "already cut and fitted" option. The lumber and materials for these homes were cut at the factory and arrived at the buyer's home completely ready to assemble. This eliminated the need for a carpenter or someone with construction know-how, as each piece of lumber was stamped with a letter and a number. The instruction book took the builder through the process step by step.
  • Sears was able to sell its homes for less for several reasons. Manufacturing costs were lower because the company mass-produced the materials. Lower manufacturing costs meant lower costs for customers. Precutting and fitting materials reduced construction time by up to 40 percent. In addition, all Sears homes used "balloon style" framing. This particular frame did not require a team of skilled carpenters to build, as did other methods. Balloon frames were built faster and usually needed only one person. The drawback to the balloon frames was that the layout was considered a fire hazard in some locations because it allowed a clear path for fire to travel throughout the house. Balloon frames were against building codes in some regions.
  • The images on the following pages originally appeared in Sears Modern Homes catalogs, dating back to 1908. By paging through the images in chronological order, one can see the influence the changing times had on the homes and how Sears presented them to the consumer. For example, as architecture styles changed throughout the years, so did the styles of the homes offered. Often, they were older models that had sold well and were now available with options to make them look more modern. Such extras included a taller chimney or front porch columns. During the Great Depression years when money was scarce, Sears focused on value, and its advertising copy stressed getting the most out of one's dollar.
  • As advertising techniques changed, so did the catalog. In its later years, ad styles were more tailored, with cleaner lines and less text. And as society became more credit-oriented, homes were advertised with an accompanying monthly payment rather than a full and final cost.
  • At all times, the Sears Modern Homes catalog was a direct reflection of American culture and society. This awareness and understanding of its customers is the very reason Sears Modern Homes program was such a phenomenal success. By appealing to the public through emotion and an acknowledgement of necessity, Sears, Roebuck gave America shelter throughout the first half of the twentieth century.

Examples of mail-order homes offered through the Sears Modern Homes program

What happened next …

The end of World War I (1914–18) brought American soldiers home. Those who had started families before the war or who were ready to live on their own needed housing. Analysts estimated that one to two million homes were needed immediately. This sudden increase of potential homebuyers caused Sears home sales to skyrocket in the 1920s. During this time, Sears published its largest Modern Homes catalogs. The largest was 144 pages and offered more than ninety house designs plus garages, outhouses, and chicken coops. Home sales peaked at $12 million in 1929.

Those all-time-high home sales were directly followed by a serious decline in sales due to the Great Depression (1929–41). With an economic slump that resulted in the highest unemployment rates the country had ever experienced, few people were able to buy homes. Those who did buy Sears homes bought the more modest styles. The best-selling model was the Crafton, a 600- to 800-square-foot residence with four optional floor plans. The house sold for between $911 and $1,165.

Beginning in 1932, Sears Modern Homes program began operating at a loss. The company reported that sales of mail-order homes had dropped 40 percent in one year. Within two years, the company liquidated (accepted as a permanent financial loss) $11 million in mortgage loans. The depression caused thousands of businesses to close, and although the Modern Homes program closed in 1934, it reopened in 1935. At that point, it offered only houses, no financing or construction, which it had done from 1929 to 1933. The financing aspect of the program had become a major problem with the mortgage liquidation in 1934, and Sears was glad to be free of that part of the operation.

Although the company no longer actively promoted its mail-order homes program, customers continued to send in their forms and buy the kits. Sears published its last Modern Homes catalog in 1940 and ended the program that same year. More than one hundred thousand homes had been sold to Americans throughout the thirty-two years of the program. Since the sales records were destroyed, there is no way to know the location of those Sears homes. Historians do know that Syracuse, New York; Akron, Ohio; and much of Illinois have high concentrations of Sears homes, primarily because of industry. In 1918, Sears made its largest single sale to the Standard Oil Company, which bought 156 homes in eight different styles for a cost of $1 million. The homes were sold to the company's mineworkers in Carlinville, Illinois, for a $100 down payment and $40 a month until the selling price of $3,000 for a five-room house (or $4,000 for a six-room home) was reached. According to Thornton, 152 of those homes remain standing in the twenty-first century (three burned to the ground and one was moved to a rural location). Only six have their original siding.

Historians and others with an interest in twentieth-century architecture are among those who travel hundreds of miles in search of original Sears Modern Homes. One Sears home in Maryland sold for $816,000 in 2001. Determining if a home is actually a Modern Home is not always easy. The simplest way to identify one is to look for stamped lumber in the basement, but this is true only of models built after 1920. Prior to that year, the lumber was not precut and fitted. With earlier models, identification comes usually by comparing the home to an actual Sears Modern Homes catalog. However, because Sears was willing to customize its house models, it is not always possible to find a picture of a true Sears home. Some have been built using the top floor of one model and the bottom floor of another. There are no pictures in existence to represent those homes.

Did you know …

  • Although many immigrants lived in tenement homes (inexpensive, overcrowded housing similar to apartment buildings) in the cities, testimonials from Sears homeowners indicate that a fair percentage of customers were immigrants with last names such as Kaczmasek, Von Lehmen, Schlag, Lichtenwalter, and Olpp.
  • Sears offered three qualities of homes throughout its thirty-two-year program. Honor Bilt was the highest quality and most expensive. Standard Bilt (also known as Lighter Built) was meant for regions in the warmer climates that did not require much insulation. Simplex, or Econo Built, were two-room buildings most often used as summer cottages or hunting shacks. Although the quality of each level varied, all the homes were sturdy and built to last.
  • Each kit contained thirty thousand pieces, including 750 pounds (340.5 kg) of nails, 27 gallons (102.2 liters) of paint, and a 75-page instruction booklet.
  • Sears sold about 370 different styles of homes throughout the course of the program.
  • Only approximately 10 percent of the Sears homes built have been discovered.

Consider the following …

  • Imagine you are a working-class immigrant in America in the early twentieth century. You have the opportunity to purchase a Sears Modern Home. What specific features would you look for in the layout and plan, and why?
  • If a company sold mail-order homes in the twenty-first century, would you consider buying one? Why or why not?
  • What aspects of buying a home out of a catalog would concern you as a homeowner?

For More Information

BOOKS

Sears, Roebuck Home Builder's Catalog: The Complete Illustrated 1910 Edition. New York: Dover Publications, 1990.

Stevenson, Katherine Cole, and H. Ward Jandl. Houses by Mail: A Guide to Houses from Sears, Roebuck and Company. Washington, DC: Preservation Press, 1986. Reprint, 1996.

Thornton, Rosemary. The Houses That Sears Built. 2nd ed. Alton, IL: Gentle Beam Publications, 2004.

WEB SITES

"History of Sears Modern Homes." Sears Archives.http://www.searsarchives.com/homes/history.htm (accessed on August 11, 2006).

Maxwell, Shirley, and James C. Massey. "The Story on Sears: Houses by Rail and Mail." Old House Journal Online.http://www.oldhousejournal.com/magazine/2002/july/sears.shtml (accessed on August 11, 2006).

Thornton, Rosemary. "Mail-Order Houses." Christian Science Monitor.http://www.csmonitor.com/2002/0612/p11s02-lihc.html (accessed on August 11, 2006).

Thornton, Rosemary. "Windows on the Past." The Old House Web.http://www.oldhouseweb.com/stories/Detailed/10102.shtml (accessed on August 11, 2006).

"What Is a Sears Modern Home?" Sears Archives.http://www.searsarchives.com/homes/ (accessed on August 11, 2006).

Sears, Roebuck and Co.

views updated May 21 2018

SEARS, ROEBUCK AND CO.


Retail giant Sears, Roebuck and Co. can trace its roots to a shipment of unwanted pocket watches that Richard W. Sears (18631914) was able to sell to his fellow freight agents on the Minneapolis and St. Louis Railroad in 1886. After selling $5,000 worth of watches in six months, Sears quit the railroad and founded the R. W. Sears Watch Company in Minneapolis. Sears built his business by buying up discontinued lines from manufacturers and selling them at a discount to his customers. Business expanded so quickly that he moved to Chicago in 1887 and hired Alvah Roebuck as the company's watch repairer.

In 1888 Sears published its first mail-order catalog, 80 pages of watches and jewelry. Within two years it had grown to 322 pages, and clothing and durable goods such as sewing machines and bicycles were added. The advent of the rural free delivery system in 1891 helped Sears reach its primary customer, the rural farmer, more easily. The 1894 catalog cover proclaimed Sears the "Cheapest Supply House on Earth." Much of the company's success was due to Richard Sears' innovative unconditional money-back guarantee, by which the company stood.

In 1893 Sears and Roebuck became partners and the firm changed its name to Sears, Roebuck and Co. A shrewd and aggressive salesperson, Richard Sears believed in continuous expansion and risk-taking. That made Alvah Roebuck uneasy and two years later he sold his interest to Sears, remaining on as a repairer. In 1895 the company reorganized with a capitalization of $150,000 split three ways among Richard Sears, local entrepreneur Aaron Nusbaum, and Nusbaum's brother-in-law Julius Rosenwald. When Nusbaum was forced to sell out in 1901 after clashing with Sears, his one-third share in the company was worth $1.25 million.

The company went public in 1906, in part to raise money for a new headquarters on Chicago's West Side. Wall Street appeared leery of Sears's tactics so he resigned as president in 1908. He remained as chairman and retired in 1913, never having presided over a board meeting. He died in 1914.

Leadership of Sears, Roebuck fell to Julius Rosenwald and under his skillful direction sales increased sixfold from 1908 to 1920. In 1911 Sears began offering credit to its customers. At a time when banks would not consider extending credit to consumers, this move helped Sears to sell more big-ticket items. In 1913 the parcel post rate was introduced and Sears quickly became the parcel post's single largest customer. Rosenwald became one of the richest men in the world and also a noted philanthropist, donating more than $63 million in his lifetime, mainly to Jewish causes and to improve the education of Southern African Americans. He was named a trustee of the Tuskegee Institute and he became a good friend of its founder, Booker T. Washington (18561915).

Sears was exclusively a mail-order operation until 1925, when it opened its first retail outlet in Chicago. By the end of the decade it had 324 retail stores and in 1931 retail sales surpassed catalog sales. Sears's entry into retailing has been credited to Robert Wood, a former executive at rival cataloger Montgomery Ward and Company, who joined Sears in 1924. Wood, nicknamed "The General," earned a reputation for genius through his long career in merchandising.

Wood became president of Sears in 1929 and he ran the company until 1954. Sears was becoming more involved in the affairs of its suppliers, many of whom depended solely on Sears for business. In 1929 two suppliers, Upton Machine and Nineteen Hundred Washer Company, merged with Sears's help to form Nineteen Hundred Corporation, which would become Whirlpool in 1950. In 1931 Sears diversified by creating its Allstate subsidiary to sell auto insurance.

In 1941 sales reached a new all-time high of $975 million, boosted by military spending and a consumer buying panic as U.S. involvement in World War II (19391945) appeared likely. During the war Sears supplied the military with a wide range of goods and some of the factories belonging to Sears suppliers were converted to munitions plants. Raw material shortages caused sales to suffer, however; the company refunded $250 million in orders that could not be filled. Around this time Sears began its first foreign ventures, opening a store in Havana, Cuba, in 1942 and several stores in Mexico in 1947.

Sales reached the one billion dollars mark in 1945 and doubled the next year. Correctly anticipating an economic boom after the war, Wood launched an aggressive expansion program that put Sears well ahead of its competition. New stores were located in the path of suburban expansion, which took off in the late 1940s and 1950s. By 1954 Sears's sales had grown to three billion dollars; Sears became a symbol of U.S. prosperity. During the 1950s Sears began to stock more clothing as sales of durable goods slackened. The company also strengthened ties to its suppliers and adopted a decentralized management structure.

The 1960s were another good decade for Sears. In 1960 the firm established its own shopping center development subsidiary, Homart Development. In 1963 sales were $5.1 billion and surveys showed that one in five U.S. consumers shopped at Sears regularly. In 1967 monthly sales topped one billion dollars for the first time.

As the 1970s began, Sears dominance of U.S. retailing was unchallenged. Construction of the Sears Tower in Chicago, the tallest building in the world for many years, was completed in 1974. At the same time skyrocketing oil prices led to nationwide recession, and a $170 million decline in profits for Sears. Sales remained flat for the next several years. Also during this period, competition in the form of specialty shops and discounters began to capture a greater share of the retail market. Within the company, decentralization introduced in the 1950s had resulted in widespread inefficiencies and rivalries among the different territories. As net income continued to decline from 1978 to 1980, it was clear that the company's poor financial performance required a solution.

Under the guidance of Edward Telling, who assumed control in 1978, Sears undertook a major reorganization in 1981. The company was organized into three major business groups: the Merchandise Group (buying and merchandise), Allstate Enterprises (insurance and financial services), and the Seraco Group (commercial and residential real estate). In addition, Sears became more involved in the growing financial services sector with the 1981 purchase of the nation's largest real estate brokerage Coldwell Banker Company, and securities firm Dean Witter Reynolds Inc. Further diversification took place in 1984 when Sears, along with IBM and CBS, launched Prodigy, an online service similar to America Online and Compuserve.

In 1985 Sears introduced the Discover Card, which combined credit and financial services and also offered savings accounts. In 1988 the company acquired Eye Care Centers of America, Pinstripes Petites, and Western Auto Supply. Its workforce swelled to an all-time high of 520,000. The company's stock continued to lag, however, and from 1986 to 1990 corporate profits slipped from $1.3 billion to $892 million. However, by 1991 Sears's financial services businesses began to contribute more earnings. Combining this with layoffs and other cost-cutting measures, Sears posted a profit of nearly $1.3 billion.

Following an unexpected loss of nearly $2.3 billion on sales of $53.1 billion in 1993, Sears began to sell off some of its non-core business assets. Eye Care Centers and Coldwell Banker's residential real estate operations were sold. Dean Witter and the Discover Card services were spun off. After a service fraud scandal and a 20 percent drop in sales, the Automotive Group stopped making repairs and then filled vacant bays through a deal with Pennzoil's Jiffy Lube. In 1994 the Homart division was sold, and Allstate was spun off.

Perhaps the most dramatic changes took place in the Merchandising Group. Under the direction of Arthur C. Martinez, who would become head of Sears in 1994, the company began to cater to female customers, who accounted for as much as 70 percent of merchandise sales. With an advertising campaign touting "the softer side of Sears," Martinez brought in more famous name clothing for women. The catalog was discontinued in 1989 after a 101-year run, although specialty catalogs were reinstated in 1994. The workforce was trimmed to 361,000, and unprofitable stores were closed while other stores were expanded.

In 1994, with the Sears Tower put in trust for transfer in 2003, company headquarters was moved to a 200-acre campus west of Chicago. During 1995 Martinez, now head of Sears, added 152 Circle of Beauty cosmetic boutiques, and Sears introduced its own line of denim sportswear, Canyon River Blues, which turned out to be a resounding success. In addition, Sears moved durable goods into their own free-standing buildings called Sears Hardware, Sears HomeLife, and Sears franchise stores. These stores would service customers who had previously ordered through the Sears catalog, especially in rural areas. Sears also began a new line of automotive after market stores called PartsAmerica, opening 30 stores in 1995 and another 60 stores in 1996. When the year was over Sears posted a solid profit of $1.8 billion on sales of $34.9 billion.

Having turned Sears around and put it back on the right track, Martinez was named Financial World's "CEO of the Year." From 1995 through 1997 Sears enjoyed rising sales, but the cost of spinning off divisions, reorganizations, and bad credit card debt cut into profits, which declined to $1.2 billion in 1997. Still a healthy retail giant, Sears had a network of 833 full-line mall-based department stores and 2,697 freestanding specialty stores in the United States in 1998. Having spun off many of its non-core businesses, the company was focused on selling apparel, furniture, hardware, and automotive merchandise.

Topic overview

In fact, the cover of the May 1993 issue of Fortune featured the logos of Sears, IBM, and General Motors with the prominent headline, "Dinosaurs!" While normally I would not speak on behalf of other companies, my response to that headline paraphrases Mark Twain: "reports of our deaths are greatly exaggerated." At Sears, we took that cover, that story, that entire experience, as a challenge. What could have been a serious setback to our progress and morale became quite the opposite and important rallying point in our ongoing re-invigoration and revitalization. The momentum was underwayour fire was lit. If that allusion to extinction hastened our pace, so much the better.

arthur c. martinez, ceo of sears, roebuck and co., 1997

See also: Chain Stores, Department Store, Mail-Order House, Retail Industry, Richard Sears


FURTHER READING

Emmet, Boris, and John E. Jeuck. Catalogues and Counters: A History of Sears, Roebuck and Company. Chicago: University of Chicago Press, 1965.

Katz, Donald R. The Big Store. New York: Viking, 1987.

Loomis, Carol J. "Dinosaurs." Fortune, May 3, 1993.

Martinez, Arthur C. "Transforming the Legacy of Sears." Strategy and Leadership, July/August 1997.

"Sears History," [cited January 28, 1999] available from the World Wide Web @ www.sears.com/company/pubaff/history1.htm/.

Sparks, Debra. "Arthur Martinez: Financial World's CEO of the Year." Financial World, March 25, 1996.